Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110786
Authors: 
Bernardini, Marco
Peersman, Gert
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5284
Abstract: 
Using state-dependent local projection methods and historical U.S. data, we find that government spending multipliers are considerably larger in periods of private debt overhang. In particular, we find significant crowding-out of personal consumption and investment in low-debt states, resulting in multipliers that are significantly below one. Conversely, in periods of private debt overhang, there is a strong crowding-in effect, while multipliers are much larger than one. In high-debt states, more (less) government purchases also reduce (increase) the government debt-to-GDP ratio. These results are robust for the type of government spending shocks, and when we control for the business cycle, government debt overhang and the zero lower bound on the nominal interest rate. Our findings imply that spending multipliers were likely much larger than average during the Great Recession.
Subjects: 
government spending multipliers
drivers
private debt
JEL: 
C32
E32
E62
N12
Document Type: 
Working Paper

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