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© 2022 International Monetary Fund
WP/22/149
IMF Working Paper
Asia and Pacific Department
Fiscal Multipliers During Pandemics1
Prepared by Tidiane Kinda, Andras Lengyel and Kaustubh Chahande
Authorized for distribution by Lam in Leigh
July 2022
IMF Working Papers describe research in progress by the author(s)and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board,or IMF management.
ABSTRACT:
Many countries have deployed substantial fiscal packages to cushion the economic fallout from the COVID-19 pandemic. A historical look at past pandemics and epidemics highlights concomitant public sector support in response to health crises. This paper assesses how fiscal multipliers could vary during health crises, particularly how factors such as social distancing and uncertainty could lower contemporaneous (T) multipliers and increase near-term (T+1 and T+2) multipliers as economies re-open, including due to pent-up demand. Based on Jorda’s (2005) local projection methodology, the paper shows that cumulative fiscal multipliers one year after a health crisis is about twice larger than during normal times, particularly in advanced economies. These results suggest that large-scale fiscal support deployed at the onset of the COVID-19 pandemic could have larger than usual lingering impacts on economic activity, which need to be accounted for when calibrating policies.
| JEL Classification Numbers: | E32,E62,H3 |
| Keywords: | Fiscal multipliers; fiscal policy; health crises. |
| Author’s E-Mail Address: | TKinda@imf.org; A.lengyel@uva.nl; KChahande@imf.org |
| JEL Classification Numbers: | E32,E62,H3 |
| Keywords: | Fiscal multipliers; fiscal policy; health crises. |
| Author’s E-Mail Address: | TKinda@imf.org; A.lengyel@uva.nl; KChahande@imf.org |
Title Page
WORKING PAPERS
Fiscal Multipliers During Pandemics
Prepared by Tidiane Kinda, Andras Lengyel and Kaustubh Chahande
Contents
Introduction
Health Crises and Economic Output: Potential Transmission Channels
Heightened Uncertainty
Supply Bottlenecks
Suppressed Demand
Data
Empirical Strategy
Main Results
Transmission Channels
Robustness and Additional Exercises
Conclusion
References
Appendix
FIGURES
1. Cumulative Fiscal Multipliers – Total Expenditures, All Countries
2. Cumulative Fiscal Multipliers – Public Consumption, All Countries
3. Cumulative Multipliers- Fixed Capital Formation, All Countries
4. Cumulative Fiscal Multipliers – Total Expenditures, Advanced Economies
5. Cumulative Fiscal Multipliers – Total Expenditures, Developing Economies
6. Including Proxies to Capture Transmission Channels: Total Expenditures, Public Consumption and Public Investment, All Countries
A1. Cumulative Multipliers – Public Consumption, Advanced Countries
A2. Cumulative Multipliers – Fixed Capital Formation, Advanced Countries
A3. Cumulative Multipliers – Public Consumption, Non-advanced Countries
A4. Cumulative Multipliers- Fixed Capital Formation, Non-advanced Countries
A5. Multipliers with the Forecast Error Identification
TABLES
1. P-values of the Chi-squared Test of the Difference between Cumulative Fiscal Multipliers in Pandemic and Non-Pandemic States
2. P-Value of the Chi-Squared Test of the Difference between the Cumulative Multipliers in the Two States, after Adding Proxies for Transmission Channels
A1. Summary Statistics
A2. Mean Values, Standard Deviations, and P-Value T-Tests of Difference in Mean of Transmission Channel Proxies in Pandemic and Non-pandemic States
A3. Transmission Channels Regressions, Total Expenditure, All Countries
A4. The Role of Fiscal Position and Credibility
The authors would like to thank Nada Choueiri, Juan Sebastian Corrales, Davide Furceri, Massimo Giuliodori, Gee Hee Hong, Nikhil Patel, Jiae Yoo, and participants in the APD Departmental Seminar for helpful comments as well as Justin Flinner for excellent production assistance.