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UK Fiscal Multipliers in the Postwar Era: Do State Dependent Shocks Matter?

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  • Sohrab Rafiq

Abstract

Front-loaded fiscal austerity since the 2008 financial crisis has meant that the UK economic experience is being viewed as a kind of test case for the proposition that contractionary fiscal policy can induce an economic expansion. The discussion has often been implicitly framed in terms of the size of the potential multiplier. Contributing to the debate, this article provides empirical estimates on the size of fiscal multipliers in the UK across various macroeconomic states during the last 50 years. The results show that since the 1980s positive government spending shocks have had a positive effect on output, with a short-run multiplier value around unity since early 2000. There is also little evidence of private consumption being crowded out. The results imply that recessions could be further aggravated if the government retrenches spending in the midst of the downturn. (JEL codes: E52, E62, F41)

Suggested Citation

  • Sohrab Rafiq, 2014. "UK Fiscal Multipliers in the Postwar Era: Do State Dependent Shocks Matter?," CESifo Economic Studies, CESifo Group, vol. 60(1), pages 213-245.
    • Handle: RePEc:oup:cesifo:v:60:y:2014:i:1:p:213-245.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ift011
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    Cited by:

    1. Berg, Tim Oliver, 2019. "Business Uncertainty And The Effectiveness Of Fiscal Policy In Germany," Macroeconomic Dynamics, Cambridge University Press, vol. 23(4), pages 1442-1470, June.
    2. Berg Tim Oliver, 2015. "Time Varying Fiscal Multipliers in Germany," Review of Economics, De Gruyter, vol. 66(1), pages 13-46, April.
    3. C. Glocker & G. Sestieri & P. Towbin, 2017. "Time-varying fiscal spending multipliers in the UK," Working papers 643, Banque de France.
    4. Glocker, Christian & Sestieri, Giulia & Towbin, Pascal, 2019. "Time-varying government spending multipliers in the UK," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 180-197.
    5. Rozina Shaheen & Paul Turner, 2020. "Fiscal multipliers and the level of economic activity: a structural threshold VAR model for the UK," Applied Economics, Taylor & Francis Journals, vol. 52(17), pages 1857-1865, April.
    6. Rozina Shaheen, 2019. "Impact of Fiscal Policy on Consumption and Labor Supply under a Time-Varying Structural VAR Model," Economies, MDPI, vol. 7(2), pages 1-15, June.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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