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

Henrique S. Basso, Omar Rachedi

Research output: Indexed journal article Articlepeer-review

10 Citations (Scopus)
45 Downloads (Pure)


We document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1-1.9 in the interquartile range. A parsimonious l ife cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers.

Original languageEnglish
Pages (from-to)110-141
Number of pages32
JournalAmerican Economic Journal: Macroeconomics
Issue number4
Publication statusPublished - 2021
Externally publishedYes


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