Measuring the Fiscal Multiplier when Plans Take Time to Implement

The paper describes how to measure the fiscal multiplier using budget statements on
planned government spending in the current and following years alongside the data on
actual outcomes. The multiplier effects can be decomposed to distinguish the effects of
‘policy reactions’ versus ‘policy initiatives’, with the latter shown to be substantially larger
than the former in a study of annual US data over 1957-2016. It is noted that the fiscal
initiatives undertaken following the events of 2007/8 played an important role in
mitigating the recessionary effects of the global financial crisis in the US.