Is fiscal policy more effective in uncertain times or during recessions?

Series: Working Papers. 1730.

Author: Mario Alloza.

Published in: International Economic Review, Volume 63, Issue 3, August 2022, pp. 1271-1292

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Is fiscal policy more effective in uncertain times or during recessions? (976 KB)

Abstract

This paper estimates the impact of government spending shocks on economic activity during periods of high and low uncertainty and during periods of boom and recession. We find that government spending shocks have larger impacts on output in booms than in recessions and larger impacts during tranquil times than during uncertain times. The results suggest that confidence plays an important role in explaining this differential impact.