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Simple Analytics and Empirics of the Government Spending Multiplier and Other "Keynesian" Paradoxes

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  • Mulligan Casey B

    (University of Chicago)

Abstract
Factor supply increases (depresses) output for many of the same reasons that the government spending multiplier might be less (greater) than one. Data from three 2008-9 recession episodes—the labor supply shifts associated with the seasonal cycle, the 2009 federal minimum wage hike, and the collapse of residential construction spending—clearly show that markets absorb an increased supply of factors of production by increasing output. The findings contradict the “paradox of toil” and suggest that government purchases and marginal tax rates reduce private consumption, even during the recession.

Suggested Citation

  • Mulligan Casey B, 2011. "Simple Analytics and Empirics of the Government Spending Multiplier and Other "Keynesian" Paradoxes," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-47, June.
    • Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:19
    DOI: 10.2202/1935-1690.2154
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    Cited by:

    1. Galán Sofía & Puente Sergio, 2015. "Minimum Wages: Do They Really Hurt Young People?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 299-328, January.
    2. Casey B. Mulligan, 2010. "Does Labor Supply Matter During a Recession? Evidence from the Seasonal Cycle," NBER Working Papers 16357, National Bureau of Economic Research, Inc.
    3. Andrew Glover, 2018. "Aggregate Effects of Minimum Wage Regulation at the Zero Lower Bound," 2018 Meeting Papers 1285, Society for Economic Dynamics.
    4. Piero Ferri, 2011. "Macroeconomics of Growth Cycles and Financial Instability," Books, Edward Elgar Publishing, number 14260.
    5. Glover, Andrew, 2019. "Aggregate effects of minimum wage regulation at the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 107(C), pages 114-128.
    6. Perendia, George & Tsoukis, Chris, 2012. "The Keynesian multiplier, news and fiscal policy rules in a DSGE model," Dynare Working Papers 25, CEPREMAP.
    7. Michael Jacobs, 2012. "Green Growth: Economic Theory and Political Discourse," GRI Working Papers 92, Grantham Research Institute on Climate Change and the Environment.
    8. George Kapetanios & Panagiotis Koutroumpis & Christopher Tsoukis, 2022. "Expansionary and contractionary fiscal multipliers in the U.S," Working Papers 939, Queen Mary University of London, School of Economics and Finance.
    9. John Whalley & Xiliang Zhao, 2013. "The relative importance of the Chinese stimulus package and tax stabilization during the 2008 financial crisis," Applied Economics Letters, Taylor & Francis Journals, vol. 20(7), pages 682-686, May.

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    More about this item

    Keywords

    fiscal policy; factor markets; seasonal cycle;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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