Locally financed and outside financed regional fiscal multipliers
The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone members, or countries with a hard exchange-rate peg—and how multipliers are affected by the way spending is financed: local deficit financing, local tax financing or outside financing (federal or foreign aid). I present analytical and quantitative government purchase and transfer multipliers using a New Keynesian model consistent with estimated transfer multipliers in Pennings (2021), focusing on the persistence of the fiscal shock. I find that at business-cycle frequencies, financing has little effect on impact multipliers: outside-financed multipliers are only about 0.07–0.16 larger than local deficit-financed multipliers. This suggests efforts to enable local countercyclical fiscal policy may be a partial substitute for greater fiscal centralization or foreign financing.
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Format: | Journal Article biblioteca |
Language: | en_US |
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Elsevier
2022-04
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Subjects: | FISCAL MULTIPLIER, NEW KEYNESIAN MODEL, MONETARY UNION, FISCAL FEDERALISM, LOCAL FINANCE, |
Online Access: | http://hdl.handle.net/10986/37277 |
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dig-okr-10986372772022-04-09T05:10:38Z Locally financed and outside financed regional fiscal multipliers Pennings, Steven FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone members, or countries with a hard exchange-rate peg—and how multipliers are affected by the way spending is financed: local deficit financing, local tax financing or outside financing (federal or foreign aid). I present analytical and quantitative government purchase and transfer multipliers using a New Keynesian model consistent with estimated transfer multipliers in Pennings (2021), focusing on the persistence of the fiscal shock. I find that at business-cycle frequencies, financing has little effect on impact multipliers: outside-financed multipliers are only about 0.07–0.16 larger than local deficit-financed multipliers. This suggests efforts to enable local countercyclical fiscal policy may be a partial substitute for greater fiscal centralization or foreign financing. 2022-04-08T08:07:27Z 2022-04-08T08:07:27Z 2022-04 Journal Article Economics Letters 0165-1765 http://hdl.handle.net/10986/37277 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Elsevier Journal Article |
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America del Norte |
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FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE |
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FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE Pennings, Steven Locally financed and outside financed regional fiscal multipliers |
description |
The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone members, or countries with a hard exchange-rate peg—and how multipliers are affected by the way spending is financed: local deficit financing, local tax financing or outside financing (federal or foreign aid). I present analytical and quantitative government purchase and transfer multipliers using a New Keynesian model consistent with estimated transfer multipliers in Pennings (2021), focusing on the persistence of the fiscal shock. I find that at business-cycle frequencies, financing has little effect on impact multipliers: outside-financed multipliers are only about 0.07–0.16 larger than local deficit-financed multipliers. This suggests efforts to enable local countercyclical fiscal policy may be a partial substitute for greater fiscal centralization or foreign financing. |
format |
Journal Article |
topic_facet |
FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE |
author |
Pennings, Steven |
author_facet |
Pennings, Steven |
author_sort |
Pennings, Steven |
title |
Locally financed and outside financed regional fiscal multipliers |
title_short |
Locally financed and outside financed regional fiscal multipliers |
title_full |
Locally financed and outside financed regional fiscal multipliers |
title_fullStr |
Locally financed and outside financed regional fiscal multipliers |
title_full_unstemmed |
Locally financed and outside financed regional fiscal multipliers |
title_sort |
locally financed and outside financed regional fiscal multipliers |
publisher |
Elsevier |
publishDate |
2022-04 |
url |
http://hdl.handle.net/10986/37277 |
work_keys_str_mv |
AT penningssteven locallyfinancedandoutsidefinancedregionalfiscalmultipliers |
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1756576088537956352 |