What's the Fiscal Multiplier For?

Interview with Prof. Rolf Campos

28/02/2013 Madrid

2012, Campos, R._095_MEI2

What Is the Fiscal Multiplier?

The fiscal multiplier is a macroeconomic device used to measure the impact of changes in government spending on GDP, says Prof. Rolf Campos. The big question is how large is it? The IMF has recently revised its figures based on the assumption that it is higher during recessions than at other times and calculate that for each $1.5 of increased / reduced government spending, GDP will rise or fall proportionally by the same amount.

Is it possible to determine the impact of an increase or reduction in public spending on the economic activity of a country? This is precisely what the fiscal multiplier does, measuring the effect of changes in public spending on the GDP. As IESE Prof. Rolf Campos explains in this interview, a drop in public spending during times of recession can reduce economic activity more than expected.