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Withering Government Spending Multipliers

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  • MATTHEW CANZONERI
  • FABRICE COLLARD
  • HARRIS DELLAS
  • BEHZAD DIBA

Abstract

The empirical literature has documented a weakening of the consumption and output responses to an increase in government spending during the last 30 years. We show that a New Keynesian model in which real government spending is observed with measurement errors can account for the reduction in the size of government spending multipliers. The model implies—consistent with empirical evidence presented by Ilzetzki, Mendoza, and Vegh (2010)—that the evolution of monetary policy and greater globalization (increasing international trade and decreasing capital controls) are key factors in this development.
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  • Matthew Canzoneri & Fabrice Collard & Harris Dellas & Behzad Diba, 2012. "Withering Government Spending Multipliers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 185-210, December.
    • Handle: RePEc:mcb:jmoncb:v:44:y:2012:i::p:185-210
    DOI: j.1538-4616.2012.00557.x
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    1. Ilzetzki, Ethan Oriel & Mendoza, Enrique G. & Végh, Carlos A., 2010. "How big (small?) are fiscal multipliers?," LSE Research Online Documents on Economics 121725, London School of Economics and Political Science, LSE Library.
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    Cited by:

    1. Marco Riguzzi & Philipp Wegmueller, 2017. "Economic Openness and Fiscal Multipliers," International Economic Journal, Taylor & Francis Journals, vol. 31(1), pages 1-35, January.
    2. Rangan Gupta & Lardo Stander & Andrea Vaona, 2023. "Openness and growth: Is the relationship non‐linear?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3071-3099, July.
    3. Luca, Pieroni & Lorusso, Marco, 2015. "Are all the fiscal policy shocks identical? Analysing the effects on private consumption of civilian and military spending shocks," MPRA Paper 69151, University Library of Munich, Germany.

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