Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data

This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. Most specifications also suggest that multipliers are not significantly higher when interest rates are near the zero lower bound. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession