Dear colleague,

The next research seminar, which you are invited to attend, will take place on 28th of November, 11h30, Américo Amorim Building (Room 6), and will be presented by Pedro Brinca, Instituto Universitário Europeu (Florence), on the topic “Fiscal Multipliers in the 21st Century”.

Fiscal Multipliers in the 21st Century

Pedro Brinca
Instituto Universitário Europeu (Florença)


Abstract

The recent experience of a Great Recession has brought the effectiveness of fiscal policy back into focus. Fiscal multipliers do, however, vary greatly over time and place. Running VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes and debt and study the effects of changing policies and various forms of inequality on the fiscal multiplier. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also negatively related to the average wealth level in the economy. This explains the correlation between wealth inequality and fiscal multipliers.

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Please confirm your attendance until November 27th by e-mailing Mara Carvalho (macarvalho@porto.ucp.pt)

 
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