This paper inspects the mechanism shaping government spending multipliers in various smallscale DSGE setups with endogenous labor supply and capital accumulation. We analytically characterize the short-run investment multiplier, which in equilibrium can be either positive or negative. The investment multiplier increases with the persistence of the exogenous government spending process. The response of investment to government spending shocks strongly affects short-run multipliers on output and consumption.
Government Spending Multipliers; DSGE models; Capital Accumulation; Labor Supply; Market Imperfections;
- E32: Business Fluctuations • Cycles
- E62: Fiscal Policy
Martial Dupaigne, and Patrick Fève, “Persistent Government Spending and Fiscal Multipliers: the Investment-Channel”, European Economic Review, Elsevier, vol. 89, October 2016, pp. 425–453.
TSE Working Paper, n. 16-655, May 2016