State Dependent Effects Of Fiscal Policy

Download or read book State-Dependent Effects of Fiscal Policy written by Steven M. Fazzari and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the effects of government spending on U.S. output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical findings support state-dependent effects of fiscal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967-2012 according to the estimated threshold level.