Primer: The Fiscal Multiplier — Brian Romanchuk

The concept of the fiscal multiplier can be viewed as simple, but there are many potential complexities to analysis. In this text, I keep the discussion simple (with a nod towards the complexities). There are multiple potential definitions of the fiscal multiplier, but I will use a straightforward one: it is the coefficient relating the expected change of nominal GDP based on an assumed change in a fiscal variable. For example, if a policy change scenario is expected to raise the fiscal deficit by $100 million (relative to baseline), and the modelled change to nominal GDP is $150 million higher than the baseline, we could say that the multiplier is 1.5 from the deficit to GDP.

The definition deliberately uses the vague term “fiscal variable” for reasons to be discussed later....

Bond Economics
Primer: The Fiscal Multiplier
Brian Romanchuk

Brad DeLong — Must-Read: David Lipton: The Key to Raising Business Investment: Keep Pushing the Accelerator

David Lipton: Some believe that the key to more business investment is less uncertainty about fiscal policy, regulation, and structural reforms. Some believe that it is providing better financing…. The facts suggest a much simpler answer: Business investment has been weak because economic activity has been weak. Ensuring a recovery in sales and sales prospects is the key.

A study we published in the April 2015 World Economic Outlook suggests that virtually all of the weakness in business investment in advanced economies since the crisis can be explained by the weakness in the economic environment… in line with the ‘accelerator effect,’ where investment responds to changes in output and sales….

WCEG — The Equitablog
Must-Read: David Lipton: The Key to Raising Business Investment: Keep Pushing the Accelerator
Brad DeLong

Norm Mogil — Fiscal Policy to the Rescue?

It's the multipliers, stupid.

Not all fiscal stimuli act with the same degree of potency. Chart 2 separates the type of stimulus between " investment" and "tax" measures. The governments obtain the greatest bang for the buck when undertaking infrastructure projects, both for their immediate impact on jobs and income as well as for their longer term benefits in adding to productive capacity (e.g. urban transportation systems). Next in importance are stimulus programs generated by increasing government consumption of goods and services (i.e. day-to-day expenses associated with government operations).

Tax measures, on the other hand, have not proven to be anywhere nearly as effective in promoting growth. The impact of reductions in personal or corporate tax cuts are de minimis. Since some portion of a tax cut is usually saved rather than entering the spending stream, tax multipliers are lower than government spending multipliers.

Thus, economists have long urged governments to look to stepping up their capital investment activities as the primary driver of fiscal stimulus policy.

Sober Look
Fiscal Policy to the Rescue?
Norm Mogil

Valerie Ramey and Sarah Zubairy — Government spending multipliers in good times and in bad: Evidence from US historical data

There is no consensus among economists about the size of the multiplier of government purchases. It is not clear either how multipliers vary with the state of the economy. This column presents new evidence on this issue using large historical data set from the US. The findings suggest that there is no evidence that fiscal multipliers differ by the amount of unemployment or the degree of monetary accommodation.… 

Our findings suggest that there is no evidence that fiscal multipliers differ by the amount of slack in the economy or the degree of monetary accommodation. These results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession. Our estimates imply that government spending during WWII lifted the economy out of the Great Depression, not because multipliers were so large, but because the amount of government spending was so great.

VOX.eu
Government spending multipliers in good times and in bad: Evidence from US historical data
Valerie Ramey, Professor in the Department of Economics, University of California, San Diego, and Sarah Zubairy, Assistant Professor in the Department of Economics, Texas A&M University

Dirk Ehnts — DSGE models and effects of high government debt levels

This brief post sums up the Post Keynesian-MMT position very well. No, mainstream, we are not crazy spenders just waiting to get the key to the Treasury. We understand the potential of fiscal policy and also the constraints.

econoblog101 

DSGE models and effects of high government debt levels

Dirk Ehnts | Berlin School for Economics and Law