Seminar "The Young, the Old, and the Government: Demographics and Fiscal Multipliers" by Henrique Basso, Banco de Espana.
Please register by sending an email to [email protected] with your full name until 4th of May, 12:00.
Seminar language: English.
We document that fiscal multipliers depend on demographics. We use the variation in government military spending and birth rates across U.S. states, and show that local fiscal multipliers increase with the share of young people in total population. To rationalize this fact, we build a parsimonious open-economy life-cycle New Keynesian model with credit market frictions and age-specific differences in labor supply. The model shows that the demographic structure influences the size of local fiscal multipliers matching our empirical results. We use the model to study the implications of population aging, and find that nowadays U.S. national fiscal multipliers are substantially lower than in 1980.