The Young, the Old, and the Government: Demographics and Fiscal Multipliers
- (pp. 110-41)
Abstract
We 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.Citation
Basso, Henrique S., and Omar Rachedi. 2021. "The Young, the Old, and the Government: Demographics and Fiscal Multipliers." American Economic Journal: Macroeconomics, 13 (4): 110-41. DOI: 10.1257/mac.20190174Additional Materials
JEL Classification
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E62 Fiscal Policy
- J11 Demographic Trends, Macroeconomic Effects, and Forecasts
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
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