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Is Freshwater Skepticism on Fiscal Multipliers Rooted in Theory?

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  • Tony Myatt
  • Brian MacLean

Abstract

Since the 2008 financial meltdown, opposing camps of mainstream macroeconomists have debated fiscal policy measures, and have expressed opposing views on the size of the fiscal multipliers—about which there is an abundance of empirical evidence. However, empirical evidence has not been enough to resolve these debates about multipliers: the “freshwater” macroeconomists have continued to express skepticism about claims of their “saltwater” counterparts that government spending multipliers should be large and positive. This paper makes the possibly surprising claim that the fiscal multiplier skepticism of “freshwater” macroeconomists is not rooted in specific macroeconomic modeling assumptions. Freshwater macroeconomists certainly have tastes for a particular set of modeling assumptions, but these assumptions are insufficient to guarantee that multipliers will be zero, let alone negative.

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  • Tony Myatt & Brian MacLean, 2014. "Is Freshwater Skepticism on Fiscal Multipliers Rooted in Theory?," International Journal of Political Economy, Taylor & Francis Journals, vol. 43(3), pages 94-107, July.
    • Handle: RePEc:mes:ijpoec:v:43:y:2014:i:3:p:94-107
    DOI: 10.1080/08911916.2014.1001701
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