DOI: https://doi.org/10.52903/wp2022292
INVESTIGATING GOVERNMENT SPENDING
MULTIPLIER FOR THE US ECONOMY: EMPIRICAL EVIDENCE USING A TRIPLE LASSO APPROACH
Zacharias Bragoudakis
Bank of Greece and National and Kapodistrian University of Athens
Dimitrios Panas
Tilburg University and Systemic RM
Abstract
An essential dilemma in
economics that has yielded ambiguous answers is whether governments should
spend more in recessions. This paper provides an extension of the work of Ramey
& Zubairy (2018) for the US economy according to which the government
spending multipliers are below unity, especially when the economy experiences
severe slack. Nonetheless, their work suffered from some limitations with
respect to invertibility and weak instrument problem.
The contribution of
this paper is twofold: Firstly, it provides evidence that a triple lasso
approach for the lag selection is a useful tool in removing the invertibility
issues and the weak instrument problem. Secondly, the main results using a triple
lasso approach suggest multipliers below unity for most cases with no evidence
for differences between different states of the economy. Nevertheless, re-running
the code in Ramey & Zubairy (2018), the case where WWII is excluded
exhibits multipliers above unity, in both the military news and
Blanchard-Perotti specifications, contradicting their baseline findings and
providing evidence for a more effective government spending in recessions.
Keywords:
government spending, fiscal multipliers, debiased machine learning, triple
lasso
JEL-Classification:
C52, E62, H50, N42
Acknowledgements:
The authors would like to thank S. Anyfantaki, H. Balfoussia, J. Joyce and G.
Tavlas for helpful comments and suggestions. The paper has also benefited from
the comments of the participants of the 25th International
Conference on Macroeconomic Analysis and International Finance (ICMAIF) organized
by the Department of Economics of the University of Crete in Rethymno, 29-31
July 2021. The views expressed do not necessarily reflect those of the Bank of
Greece.
Correspondence:
Zacharias Bragoudakis
Economic Analysis and Research Department
Bank of Greece
21 El. Venizelos Av., 10250 Athens, Greece
Tel.:0030-210-3203605
Email: zbragoudakis@bankofgreece.gr