2025/10 LEM Working Paper Series

Are fiscal multipliers state dependent? Insights from an agent-based model

Marco Amendola and Marcelo C. Pereira
  Keywords
 
Fiscal policy; State-dependent fiscal multipliers; Agent-based models; Non-linear dynamics
  JEL Classifications
 
C63; E62; H30
  Abstract
 
The paper examines the macroeconomic effects of fiscal policy under varying economic conditions. The analysis is conducted using a closed-economy agent-based model, where macroeconomic outcomes of fiscal intervention emerge from the bottom up as the result of interactions between heterogeneous agents in different markets, with feedback loops between demand, supply, and the financial sector. The model simulation results indicate that expansionary fiscal policies generate significant positive effects on aggregate output, with a public consumption multiplier of 1.6 on average, and an income tax multiplier of approximately 1.0. Notably, the effectiveness of a public direct consumption stimulus exhibits significant non-linearities, with multipliers reaching up to 3.5 during periods of economic slack and 2.5 during times of high financial fragility. In contrast, income tax rate multiplier appears largely acyclical. Overall, this analysis contributes to the growing and unsettled debate on the state-dependent effects of fiscal policy, providing model-based insights into this crucial topic.
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