Public spending shocks work better when households are confident- paper
Government spending stimulus reduces household confidence as it confirms pessimism regarding economy, paper argues
The impact of government spending shocks is greater during times of low uncertainty and economic expansion, a research paper released by the Bank of Spain says.
Is fiscal policy more effective in uncertain times or during recessions?, by Mario Alloza, finds government spending shocks are less effective during periods of high uncertainty and recession.
The author calls for more research to identify whether it is the uncertainty or the recession, or a combination of both, that is causing this
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