Who proposed the fiscal multiplier concept in 1930?
Richard Kahn proposed the fiscal multiplier concept in 1930. He published his calculations the following year in 1931 to justify public works spending.
Richard Kahn proposed the fiscal multiplier concept in 1930. He published his calculations the following year in 1931 to justify public works spending.
The fiscal multiplier is a ratio of change in national income arising from a change in government spending. An initial incremental amount of spending can lead to increased income and hence increased consumption spending that exceeds the initial amount.
Mark Zandi provided estimates of the one-year multiplier effect for several fiscal policy options in July 2008 during congressional testimony. The most effective policy was a temporary increase in food stamps with an estimated multiplier of 1.73.
The fiscal multiplier reaches 1 or greater when unemployment of resources is high because cash is often hoarded in financial systems. Increased spending by government increases the rate of aggregate demand which increases business activity and further increases spending in a virtuous cycle.
Italian economists have estimated multiplier values ranging from 1.4 up to 2.0 when dynamic effects are accounted for. This contrasts with IMF staff reports suggesting fiscal multipliers used in forecasting process are about 0.5 while results indicate multipliers have actually been in 0.9 to 1.7 range since Great Recession.