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Fiscal Spending Multiplier Calculations based on Input-Output Tables – with an Application to EU Members

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  • Pusch, Toralf
  • Rannenberg, Ansgar

Abstract

Fiscal spending multiplier calculations have been revived in the aftermath of the global financial crisis. Much of the current literature is based on VAR estimation methods and DSGE models. The aim of this paper is not a further deepening of this literature but rather to implement a calculation method of multipliers which is suitable for open economies like EU member states. To this end, Input-Output tables are used as by this means the import intake of domestic demand components can be isolated in order to get an appropriate base for the calculation of the relevant import quotas. The difference of this method is substantial - on average the calculated multipliers are 15% higher than the conventional GDP fiscal spending multiplier for EU members. Multipliers for specific spending categories are comparably high, ranging between 1.4 and 1.8 for many members of the EU. GDP drops due to budget consolidation might therefore be substantial if monetary policy is not able to react in an expansionary manner.

Suggested Citation

  • Pusch, Toralf & Rannenberg, Ansgar, 2011. "Fiscal Spending Multiplier Calculations based on Input-Output Tables – with an Application to EU Members," IWH Discussion Papers 1/2011, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-1-11
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    References listed on IDEAS

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    Cited by:

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    2. Gechert, Sebastian, 2012. "The multiplier principle, credit-money and time," MPRA Paper 34648, University Library of Munich, Germany.
    3. Sonya Georgieva, 2021. "Fiscal Multipliers in Bulgaria and Central and Eastern Europe Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 131-167.

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    More about this item

    Keywords

    Fiscal spending multiplier calculation; Input-Output calculus; incomeexpenditure model; European Union; stimulus; consolidation; Fiskalpolitischer Ausgabenmultiplikator; Multiplikator; Fiskalpolitik; Input-Output-Rechnung; Europäische Union; Konjunkturpolitik; Konsolidierung;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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