PROCYCLICAL AND COUNTERCYCLICAL FISCAL MULTIPLIERS: EVIDENCE FROM OECD COUNTRIES Daniel Riera-Crichton Carlos A. Vegh Guillermo Vuletin Working Paper 20533 http://www.nber.org/papers/w20533
Using non-linear methods, we argue that existing estimates of government spending multipliers in
expansion and recession may yield biased results by ignoring whether government spending is increasing
or decreasing. In the case of OECD countries, the problem originates in the fact that, contrary to
one's priors, it is not always the case that government spending is going up in recessions (i.e., acting
countercyclically). In almost as many cases, government spending is actually going down (i.e., acting
procyclically). Since the economy does not respond symmetrically to government spending increases
or decreases, the "true" long-run multiplier for bad times (and government spending going up) turns
out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In extreme
recessions, the long-run multiplier reaches 3.1.
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