Fiscal Multipliers, Fiscal Sustainability and Financial Frictions (joint with Michael Binder and Volker Wieland)

Category: Money and Macro Brown Bag Seminar
When: 10 November 2016
, 12:00
 - 13:00
Where: Dubai (HoF 1.27)
Speaker: Philipp Lieberknecht (Goethe University Frankfurt)

We analyze fiscal expenditure and tax multipliers in four New Keynesian models with financial frictions estimated for the Euro Area. The combination of financial frictions and a binding zero lower bound increases multipliers only moderately just above unity. Refinancing additional government expenditure is not considerably cheaper in a liquidity trap. Output effects of tax rate decreases are generally lower than those based on direct government expenditure. Fiscal consolidation at the zero lower bound succeeds in reducing debt{to GDP and providing stimulus if it combines a reduction of government expenditure and transfers with a decrease of labor tax rates.