The Government Spending Multiplier: A Survey of Empirical Literature

This literature review examines the wide-ranging estimates of the fiscal multiplier—the effect of government spending on economic output. Despite extensive empirical exploration, estimates of the fiscal multiplier span from –3.00 to 3.00 and are influenced by model assumptions, theoretical innovations, state-dependent factors, and dataset choices. This review discusses methodological advancements, including state-dependent estimates, and explores how the multiplier varies under economic slack, at the zero lower bound (ZLB), and with large public debt burdens. The review finds that multipliers are generally within the range of 0.50 to 0.90, with higher estimates during economic slack and at the ZLB and lower estimates for regimes with high public-debt ratios. The degree of state dependence is more modest than suggested by earlier research. Robust evidence that ZLB multipliers are larger than 1.00 is scarce. The paper concludes by calling for more dynamic models and cross-country comparisons to lead to a better understanding of the nuanced effects of fiscal stimulus.