March 2020

When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases

Travis Berge, Maarten De Ridder and Damjan Pfajfar


We synthesize the recent, at times conflicting, empirical literature regarding whether fiscal policy is more effective during certain points in the business cycle. Evidence of state dependence in the multiplier depends critically on how the business cycle is defined. Estimates of the fiscal multiplier do not change when the unemployment rate is above or below its trend. However, we find that the multiplier is higher when the unemployment rate is increasing relative to when it is decreasing. This result holds using both a long time-series at the U.S. national level and for a panel of U.S. states.
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Last Update: March 27, 2020