Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202931 
Year of Publication: 
2019
Series/Report no.: 
Working Papers No. 19-3
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
Using novel data on military spending for 129 countries in the period 1988-2013, this paper provides new evidence on the effects of government spending on output in advanced and developing countries. Identifying government-spending shocks with an exogenous variation in military spending, we estimate one-year fiscal multipliers in the range 0.75-0.85. The cumulative multipliers remain significantly different from zero within three years after the shock. We find substantial heterogeneity in the multipliers across groups of countries. We then explore three potential sources leading to heterogeneous effects of fiscal policy: the state of the economy, openness to trade, and the exchange-rate regime. We find that the multipliers are especially large in recessions, in closed economies, and under a fixed exchange rate. We also discuss other potential reasons for heterogeneous effects of fiscal policy, such as its implementation and coordination with the monetary authority.
Subjects: 
fiscal policy
military spending
multiplier
JEL: 
E32
E62
F44
H56
O23
Document Type: 
Working Paper

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