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The Young, the Old, and the Government: Demographics and Fiscal Multipliers†

The Young, the Old, and the Government: Demographics and Fiscal Multipliers† AbstractWe document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers. (JEL D15, E12, E24, E62, J11, J22, J23) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

The Young, the Old, and the Government: Demographics and Fiscal Multipliers†

The Young, the Old, and the Government: Demographics and Fiscal Multipliers†

American Economic Journal: Macroeconomics , Volume 13 (4) – Oct 1, 2021

Abstract

AbstractWe document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers. (JEL D15, E12, E24, E62, J11, J22, J23)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20190174
Publisher site
See Article on Publisher Site

Abstract

AbstractWe document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers. (JEL D15, E12, E24, E62, J11, J22, J23)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Oct 1, 2021

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