Atsushi Inoue, Barbara Rossi, Yiru Wang, 14 April 2022

Estimates of fiscal policy multipliers differ widely in the literature. A possible explanation for this wide range of estimates is that the effects of fiscal shocks and the government spending multipliers vary over time, but what exactly determines them is an open question. Using a new time-varying parameter local projection with instrumental variables technique, this column sheds new light on the magnitude of time variation in the effects of fiscal policy shocks and multipliers. 

Efraim Benmelech, Carola Frydman, 29 April 2020

The immediate economic fallout for the US economy from the coronavirus pandemic is predicted to be disastrous. In comparison, while the Spanish flu also had some economic consequences, they were mostly modest and temporary. This column evaluates the developments in the US economy during the 1918 influenza, in search of a possible explanation for the limited adverse effects of the flu despite similar social distancing requirements, albeit at a lower scale. It concludes that a large expansion in government demand can go a long way in softening the economic impact of the crisis we face today. 

Sebastian Barnes, Eddie Casey, 17 June 2019

Expenditure rules are an attractive way of keeping government spending on a steady path consistent with sustainable growth, but they rely on an estimate of potential output growth. Using data on the European Commission's past forecasts of both potential growth rates and actual output growth rates for 15 member states for the period 2004–2018, this column shows that there is a real danger of faulty potential output estimates leading to procyclical policy.

Joshua Aizenman, Yothin Jinjarak, Hien Thi Kim Nguyen, Donghyun Park, 28 September 2018

The upward trajectory of policy interest rates in OECD countries will impose growing fiscal challenges, testing their fiscal capacity for countercyclical policy and thus their resilience. This column compares fiscal cyclicality across countries and identifies measures of fiscal space. The results reveal a mixed fiscal scenery, where more than half of countries are characterised by limited fiscal space, and fiscal policy is either procyclical or acyclical.

Simon Wren-Lewis, 02 August 2018

Giovanni Caggiano, Efrem Castelnuovo, 23 June 2015

There is no consensus on the effectiveness of government spending as a measure for boosting output. This column suggests that increasing government spending is highly effective exactly when it is most needed – when the economy is experiencing a deep recession. But the finding does not imply a one-size-fits-all recommendation. There are potential dangers in increasing spending in countries whose level of debt might be perceived as unsustainable.

Alan Auerbach, Yuriy Gorodnichenko, 10 May 2015

The impact of fiscal policy on exchange rates is of key interest to policymakers. This column argues that unexpected government spending instantly affects exchange rates. The finding, based on daily data reporting of the US Defence Department, may suggest that unexpected government spending has broader macroeconomic effects as well. The results, however, do not hold is low-frequency data are used instead.

Benjamin Born, Gernot Müller, Johannes Pfeifer, 22 February 2015

Many observers blame austerity for much of the Eurozone’s current economic woes. This column presents new evidence on how financial markets assess austerity. Cutting government consumption raises the sovereign default premium in the short run. However, austerity pays off in the long run.

Charles Wyplosz, 14 May 2012

With French and Greek voters rejecting austerity, politicians are once again taking the government spending debate seriously. This column argues that the voters are right – it is a bad idea to tighten fiscal policy when growth is so feeble. But the column adds that, wherever one looks, the road away from austerity looks desperately blocked.

Guglielmo Barone, Gaia Narciso, 05 May 2012

Can organised crime divert public spending? This column presents evidence of the Mafia influencing public transfers and argues that geographically targeted aid should take into account the risk that at least part of the funding feeds into organised crime.

Pontus Rendahl, 26 April 2012

Many developed economies are in a liquidity trap with interest rates at or near zero. Many also have high unemployment that looks set to persist. This column argues that it is times like these when governments should be spending more, not less – they just have to be careful how they do it.

Jim Brumby, Era Dabla-Norris, Annette Kyobe, Zac Mills, Chris Papageorgiou, 03 July 2011

In the debate over the pros and cons of government spending, the efficacy of public investment is a point on which many conclusions hinge. This column introduces a new Public Investment Management Index that benchmarks the quality and efficiency of the investment process across 71 developing and emerging countries.

Hyunseung Oh, Ricardo Reis, 04 May 2011

Government spending and its effect on the economy is a perpetual source of debate. This column argues that too much discussion has focused on government purchases, when the fiscal expansion from 2007 to 2009 was all about transfers. It suggests that fiscal spending on transfers can boost the economy in a recession, though only if the transfer moves resources between the right groups.

Sebastian Nieto-Parra, Javier Santiso, 22 December 2009

Does the type of electoral system affect fiscal policy around elections? This column shows that electoral systems allowing immediate re-election in Latin America have a considerable impact on government spending. On the positive side, fiscal management shows a slight improvement around elections.

Patricia Funk, 28 November 2008

Patricia Funk of the Universitat Pompeu Fabra talks to Romesh Vaitilingam about her research on the impact of direct democracy on government spending, which draws on over a hundred years of data on the cantons of Switzerland. The interview was recorded at the annual congress of the European Economic Association in Milan in August 2008.

Oriana Bandiera, Andrea Prat, Tommaso Valletti, 21 April 2008

What determines how efficiently a certain public service is provided? The authors of CEPR DP6799 use a dataset of procurement prices paid by Italian public bodies to disentangle the effect of active waste (overpricing that benefits the decision-maker directly, like bribing) and passive waste (overpricing due to sheer inefficiency). The results indicate that passive waste accounts for 83% of the total estimated waste.

Bruno van Pottelsberghe de la Potterie, 06 March 2008

Europe isn’t increasing its R&D intensity. Professor Pottelsberghe, former Chief Economist of the European Patents Office, identifies why Europe is missing its targets and looks to the R&D leaders – the US and Sweden – for policy lessons.


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