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Public Consumption Multipliers in Slack and Good Periods: Evidence From the Euro Area

Published online by Cambridge University Press:  15 November 2022

Marco Amendola
Marco Amendola*
Affiliation:
Department of Industrial and Information Engineering and Economics, University of L’Aquila, L’Aquila, Italy
*
Email: marco.amendola2@univaq.it
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Abstract

The paper estimates public consumption multipliers and whether they vary depending on the slack of the economy. To this aim, linear and smooth-transition panel local projections are applied to a data set composed of quarterly data on nine selected Euro area countries for the period 1999Q1−2018Q4. The results show that the linear multiplier is approximately 1.3 and so above unity. This is, however, an “average result” as clear evidence is found in favor of state dependency. Particularly, the findings indicate that the multiplier is approximately 2.0 in the slack regime, while it is below 0.5 in the good regime. These results are robust along several dimensions, such as alternative measures of slack and controlling for fiscal foresight. Some linear and state-dependent transmission channels are also investigated.

Keywords

Public consumption multipliersstate-dependent fiscal multiplierslocal projections
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 8 , December 2023 , pp. 2031 - 2055
Copyright
© The Author(s), 2022. Published by Cambridge University Press

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Footnotes

*

I am grateful to the editor William A. Barnett, the associate editor, and two anonymous referees for their insightful comments and suggestions.

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