Dimitrios Bermperoglou (Kiel Institute)
This paper estimates the effects of government expenditure on public health and transfers to households in the U.S. based on a DSGE model with financial frictions. I find that both types of spending stimulate private consumption and investment implying fiscal multipliers higher than 1. A counterfactual experiment shows that the recession in the U.S. due to the pandemic crisis would be more severe without implementing the generous CARES Act. Structural vector autoregression (SVAR) estimates provide further supporting evidence of the stimulative effects of public health expenditure and transfers.
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