Expansionary and Contractionary Fiscal Multipliers in the United States

ABSTRACT We estimate the fiscal (spending) multiplier using quarterly US data, 1981Q3–2024Q4. We define government spending shocks as actual minus expected expenditure growth, the latter obtained from the Survey of Professional Forecasters. We employ the Jordà local projections method, coupled with state dependence of parameters, with smooth transition between states. A key testable hypothesis is that the positive and negative spending shocks have numerically (as well as qualitatively) different effects. We find that multipliers of shocks differ qualitatively (in terms of cyclicality) as well as quantitatively. Multipliers are almost always above unity (and often well above). Importantly, we uncover evidence that negative shocks have stronger effects over longer periods of time in the case of the FEC multipliers and likely with the PVIR‐FM multipliers, too. Pooled‐shock estimation can seriously bias results. Additionally, there is strong evidence that the two types of shock produce almost uniformly significantly different estimated coefficients of our key estimable equation.