Abstract:
Utilising a nonlinear (regime-switching) mixed-frequency panel vector autoregression
model, we study the effects of government spending shocks in the United States (US) over the
business cycle, while considering the role of partisan conflict. In particular, we investigate whether
partisan conflict is relevant to the differences in fiscal spending multipliers in expansionary and
recessionary business cycle phases upon the impact of annual government spending shocks, using
quarterly state-level data covering 1950:Q1 to 2016:Q4. We find new evidence that fiscal multipliers
can vary with economic and political conditions. The cumulated effects of government spending
shocks are strong and persistent in recessions when the level of partisan conflict is low.
