“Keynesian Government Spending Multipliers and Spillovers in the Euro Area”
Proponents of discretionary fiscal stimulus—most prominent among them Paul Krugman of Princeton University and The New York Times—emphasize the Keynesian multiplier effect that implies that additional government spending would induce an increase in private spending and therefore a greater than one-for-one effect on aggregate GDP. Yet, as shown in a recent ECB (European Central Bank) working paper by Tobias Cwik of Goethe University, Frankfurt, and Volker Wieland of the Centre for Economic Policy Research, London, this theory is, to say the least, not as good as its supporters claim. In fact, after investigating whether the spending package announced by Euro area governments for 2009 and 2010 is likely to have such a multiplicative effect on euro area GDP, Tobias Cwik and Volker Wieland came to a conclusion that … Read the full paper here (pdf). Thanks: www.chicago-blog (in Italian).