Abstract
Utilising a nonlinear (regime-switching) mixed-frequency panel vector autoregression model, we study the effects of government spending shocks in the United States (US) over the business cycle, while considering the role of partisan conflict. In particular, we investigate whether partisan conflict is relevant to the differences in fiscal spending multipliers in expansionary and recessionary business cycle phases upon the impact of annual government spending shocks, using quarterly state-level data covering 1950:Q1 to 2016:Q4. We find new evidence that fiscal multipliers can vary with economic and political conditions. The cumulated effects of government spending shocks are strong and persistent in recessions when the level of partisan conflict is low.
Subject
Management, Monitoring, Policy and Law,Renewable Energy, Sustainability and the Environment,Geography, Planning and Development,Building and Construction
Reference29 articles.
1. Fiscal policy as a countercyclical tool,2008
2. Global economic policieS and prospects,2009
3. The effects of government spending shocks: Evidence from U.S. states
4. Measuring the Output Responses to Fiscal Policy
5. Fiscal multipliers in recession and expansion;Auerbach,2013