In the Long Run, the Multiplier is Dead: Lessons from a Simulation
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Makin, Tony
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William Coleman
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Abstract
This paper re-examines the significance of the fiscal multiplier from an inter-temporal perspective using simulation results derived from a standard overlapping-generations framework. It reveals that even if fiscal stimulus in the form of extra public consumption spending is assumed to increased output and employment in the short run, the negative medium to long-term consequences of the stimulus will ultimately exceed, in present-value terms, the short-term macroeconomic benefits of that stimulus. This is due to the interest rate and tax effects of the stimulus-induced budget deficit which lowers future private investment, household consumption, and labour supply.
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18
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1
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© The Author(s) 2011. The attached file is reproduced here in accordance with the copyright policy of the publisher. For information about this journal please refer to the journal's website or contact the authors.
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Applied economics
Macroeconomics (incl. monetary and fiscal theory)
Banking, finance and investment
Policy and administration