Description

We estimate the average fiscal multiplier, allowing multipliers to be heterogeneous across
 countries or over time and correlated with the size of government spending. We demonstrate
 that this form of nonseparable unobserved heterogeneity is empirically relevant and address it
 by estimating a correlated random coefficient model. Using a panel dataset of 127 countries
 over the period 1994-2011, we show that not accounting for omitted heterogeneity produces
 a significant downward bias in conventional multiplier estimates. We rely on both crosssectional
 and time-series variation in spending shocks, exploiting the differential effects of
 oil price shocks on fuel subsidies, to identify the average government spending multiplier.
 Our estimates of the average multiplier range between 1.4 and 1.6.

More publications in this series: Working Papers

More publications by: Emmanouil Kitsios ; Manasa Patnam