Fiscal Policy Multipliers in Small States

This paper estimates fiscal policy multipliers for small states using two distinct models: an empirical forecast error model with data from twenty-three across the world, and a dynamic stochastic general equilibrium (DSGE) calibrated to hypothetical state’s economy. We find that, in short term, government consumption investment are both about 0.4, on average, DSGE baseline results, they affected by imports as share of GDP, level debt, economy’s position business cycle, among other factors. In medium long run, while is ineffective, has multiplier 0.7, results. These results robust different specifications characteristics states. Inability affect GDP could be frustrating policymakers when expansionary needed but encouraging consider consolidation.