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Economic policy uncertainty and government spending multipliers

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  • Li, Rong
  • Wei, Ning

Abstract

We examine the impact of Economic Policy Uncertainty (EPU) on the effectiveness of government spending using a local projection method with an endogenously determined threshold parameter. The empirical analysis reveals that government spending multipliers are larger during low EPU periods compared to those in high EPU periods. This result is robust when government spending shocks are identified using government spending news constructed based on survey of professional forecasters data. Our study calls for policy expectation management as a company effort together with fiscal stimulus.

Suggested Citation

  • Li, Rong & Wei, Ning, 2022. "Economic policy uncertainty and government spending multipliers," Economics Letters, Elsevier, vol. 217(C).
    • Handle: RePEc:eee:ecolet:v:217:y:2022:i:c:s016517652200235x
    DOI: 10.1016/j.econlet.2022.110693
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    References listed on IDEAS

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    More about this item

    Keywords

    Government spending multiplier; Economic policy uncertainty; Fiscal policy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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