CFE 2020: Start Registration
View Submission - CFE
A0810
Title: Fiscal multipliers in the most aged country: Empirical evidence and theoretical interpretation Authors:  Hiroshi Morita - Hosei University (Japan) [presenting]
Abstract: The purpose is to investigate how population ageing impacts the effectiveness of a government spending shock. We estimate a panel VAR model with prefectural data in Japan, the world's fastest ageing country and reveal that a government spending shock becomes less effective as the ageing rate increases. Subsequently, we construct a New Keynesian model with workers and retirees, which can replicate our empirical findings. This highlights the role of the supply-side channel through which workers facing a liquidity constraint can benefit from increased disposable income, in generating the state-dependent effect of the government spending shock. The theoretical finding may suggest that promoting labour market participation by elderly people could increase the effectiveness of a government spending shock amid a rapidly ageing society.