Brinca, Pedro
[VerfasserIn]
;
Faria-e-Castro, Miguel
[Sonstige Person, Familie und Körperschaft];
Homem Ferreira, Miguel
[Sonstige Person, Familie und Körperschaft];
Holter, Hans Aasnes
[Sonstige Person, Familie und Körperschaft]
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 22, 2020 erstellt
Beschreibung:
We argue that the fiscal multiplier of government purchases is nonlinear in the spending shock, in contrast to what is assumed in most of the literature. In particular, the multiplier of a fiscal consolidation is decreasing in the size of the consolidation. We empirically document this fact using aggregate fiscal consolidation data across 15 OECD countries. We show that a neoclassical life-cycle, incomplete markets model calibrated to match key features of the U.S. economy can explain this empirical finding. The mechanism hinges on the relationship between fiscal shocks, their form of financing, and the response of labor supply across the wealth distribution. The model predicts that the aggregate labor supply elasticity is increasing in the fiscal shock, and this holds regardless of whether shocks are deficit- or balanced-budget financed. We find evidence of our mechanism in micro-data for the US