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Modeling the short-run effect of fiscal stimuli on GDP: A new semi-closed input–output model

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  • Chen, Quanrun
  • Dietzenbacher, Erik
  • Los, Bart
  • Yang, Cuihong

Abstract

In this study, we propose a new semi-closed input–output model, which reconciles input–output analysis with modern consumption theories. It can simulate changes in household consumption behavior when exogenous stimulus policies lead to higher disposable income levels. It is useful for quantifying the short-run effects of fiscal stimuli on GDP and its industry-level value added components. We illustrate the use of the model by estimating the short-run effect of the 4trillion yuan stimulus package on China's GDP. Our results show that this stimulus package might have led to an increase in GDP of more than 3trillion yuan, which is 9.5% of China's GDP in 2008. This result compares well to actual changes in GDP as observed in the years immediately after the introduction of the package.

Suggested Citation

  • Chen, Quanrun & Dietzenbacher, Erik & Los, Bart & Yang, Cuihong, 2016. "Modeling the short-run effect of fiscal stimuli on GDP: A new semi-closed input–output model," Economic Modelling, Elsevier, vol. 58(C), pages 52-63.
    • Handle: RePEc:eee:ecmode:v:58:y:2016:i:c:p:52-63
    DOI: 10.1016/j.econmod.2016.05.016
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    More about this item

    Keywords

    Input–output model; Household consumption; Multiplier effect; Government spending;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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