<p>With monetary offset by the central bank the fiscal multiplier is approximately zero for any government spending.</p>

<p>See eg <a href="https://www.mercatus.org/publication/why-fiscal-multiplier-roughly-zero-0" rel="nofollow noreferrer">Why the Fiscal Multiplier is Roughly Zero</a>.</p>

<p>Basically, if any government spending pushes up inflation (or a similar measure targeted by the central bank) the central bank will 'print less money', eg by increasing interest rates.  If government austerity were to suppress total spending and thus inflation, the central bank 'prints more money', eg by lowering interest rates or doing more QE.</p>

<p>We can see that happening eg with the American fiscal cliff---the US federal deficit was cut in half, and pundits forecast the end-of-the-world, but if anything job growth accelerated.  Similarly, we can already see that Trumps promised extra spending just leads to the FED raising rates.  Inflation expectations both from the Feds forecasts and implied by spreads of inflation indexed treasury bonds over convention treasury bonds both stay relatively flat at 2%.</p>

<p>Under a gold standard or a central bank regime that targets things other than inflation or aggregate spending, government expenditures can have a non-zero fiscal multiplier.</p>

CC BY-SA 3.0
2017-01-18T19:24:45.183Z
It is worthy to point out that most macroeconomists would disagree with this characterization, and that the fiscal multipliers that economists are  interested in are "ceteris paribus", i.e. keeping monetary policy constant.
For an example of a recent, peer-reviewed work on the topic see for example https://www.aeaweb.org/articles?id=10.1257/aer.104.3.753
Tobias
CC BY-SA 3.0
2017-01-19T14:41:15.457Z
I'm not sure about most.  But you are right, the topic is [controversial](https://en.wikipedia.org/wiki/Fiscal_multiplier#Criticisms).
Matthias
CC BY-SA 3.0
2017-01-21T19:46:00.810Z
The question does not ask about the significance of fiscal multipliers in general, but whether unemployment benefits act similar to other spending.
FooBar
CC BY-SA 3.0
2017-01-18T10:19:29.363Z
2017-01-18T10:19:29.363Z
Matthias
<p>I'm aware of the concept of the multiplier effect, and when I think about it, shouldn't it be possible that government spending on unemployment benefits create a multiplier effect?</p>

CC BY-SA 3.0
2017-01-16T23:13:14.497Z
If unemployment is involuntary and unavoidable then that may be true.  But otherwise, the effect may be negative as unemployment benefit can increase a potential worker's reservation wage.  A different effect is whether higher unemployment benefits discourage excessively risk-averse behaviour by potential workers
Henry
<investment>
Are unemployment benefits considered to be an investment that may lead to a multiplier effect?
tsp216
# Are unemployment benefits considered to be an investment that may lead to a multiplier effect?

(Asked by: username_0 on 2017-01-16)

I'm aware of the concept of the multiplier effect, and when I think about it, shouldn't it be possible that government spending on unemployment benefits create a multiplier effect?

**Tags:** investment
> **Comments:**
> **username_1**: If unemployment is involuntary and unavoidable then that may be true.  But otherwise, the effect may be negative as unemployment benefit can increase a potential worker's reservation wage.  A different effect is whether higher unemployment benefits discourage excessively risk-averse behaviour by potential workers  

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## 1 answers

### Answer by username_2 on 2017-01-18. Score: 0 | Accepted answer

With monetary offset by the central bank the fiscal multiplier is approximately zero for any government spending.

See eg [Why the Fiscal Multiplier is Roughly Zero](https://www.mercatus.org/publication/why-fiscal-multiplier-roughly-zero-0).

Basically, if any government spending pushes up inflation (or a similar measure targeted by the central bank) the central bank will 'print less money', eg by increasing interest rates. If government austerity were to suppress total spending and thus inflation, the central bank 'prints more money', eg by lowering interest rates or doing more QE.

We can see that happening eg with the American fiscal cliff---the US federal deficit was cut in half, and pundits forecast the end-of-the-world, but if anything job growth accelerated. Similarly, we can already see that Trumps promised extra spending just leads to the FED raising rates. Inflation expectations both from the Feds forecasts and implied by spreads of inflation indexed treasury bonds over convention treasury bonds both stay relatively flat at 2%.

Under a gold standard or a central bank regime that targets things other than inflation or aggregate spending, government expenditures can have a non-zero fiscal multiplier.

> **Comments:**
> **username_3**: It is worthy to point out that most macroeconomists would disagree with this characterization, and that the fiscal multipliers that economists are  interested in are "ceteris paribus", i.e. keeping monetary policy constant. For an example of a recent, peer-reviewed work on the topic see for example https://www.aeaweb.org/articles?id=10.1257/aer.104.3.753  
> **username_2**: I'm not sure about most.  But you are right, the topic is [controversial](https://en.wikipedia.org/wiki/Fiscal_multiplier#Criticisms).  
> **username_4**: The question does not ask about the significance of fiscal multipliers in general, but whether unemployment benefits act similar to other spending.  

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