Omar Rachedi, Bank of Spain

"The Young, the Old, and the Government: Demographics and Fiscal Multipliers"


We document that fiscal multipliers depend on demographics. We use the variation in government military spending and birth rates across U.S. states, and show that local fiscal multipliers increase with the share of young people in total population. To rationalize this fact, we build a parsimonious open-economy life-cycle New Keynesian model with credit market imperfections and age-specific differences in labor supply. We use the model to study the implications of population aging on the size of fiscal multipliers.