The widespread use of fiscal stimulus measures to counter the global financial crisis and the more recent shift toward fiscal tightening in many advanced economies have revived the long-standing debate on the size of the fiscal multiplier. From a theoretical perspective, however, there is no such thing as the multiplier. Instead, fiscal multipliers are likely to depend on a number of factors which vary both across countries and time. Traditional Mundell—Fleming analysis posits diat the effectiveness of fiscal stabilization hinges on financial development, capital mobility, trade openness, and the exchange rate regime- In addition, the response of private demand to a fiscal-interven-tion may also depend on the state of public finances. For instance, fiscal expansions at high levels of debt could play out differently if they increase the likelihood of a sharp future retrenchment. Another potential determinant is the health of the financial system, notably the extent to which the private sector has access to credit, given that binding liquidity constraints generally reinforce the impact of fiscal stimulus. In a similar vein, recent quantitative analysis predicts exceptionally large government spending multipliers during deep recessions when monetary policy is constrained by the zero lower bound on policy rates.
展开▼
