Fiscal Multipliers for the United States

The aim of this study is to trace the effects of fiscal policy shocks. We calculate the level of fiscal multipliers and short-term output fiscal elasticities for the United States. We do so by estimating a Bayesian three-variate fiscal vector autoregression model that accounts for uncertain identification assumptions. The government spending multiplier is equal to 1.65 on impact and 0.53 after one year, while the tax multiplier is equal to -2.00 on impact and -0.10 after one year. The posterior output elasticity of taxes is equal to 2.20. Increasing the prior assumptions for output elasticity of taxes leads to a lower tax multiplier. The study shows that both increasing spending and decreasing taxes can stimulate the economy. However, the effects of tax decreases may be larger for the economy.