Multipliers Are a Crock

A multiplier less than one indicates that other components of GDP fell by more than government spending rose. For annual data that start in 1939 and run to the present, empirical research has shown that most of these reductions were in private investment, while personal consumption fell less. Indeed, the spending multiplier was estimated in a range of 0.6 to 0.7.

Thus, evidence does not support the idea that spending multipliers typically exceed one, and so spending stimulus programs will likely raise GDP by less than the increase in government spending. Multipliers exceeding one likely apply only at high unemployment rates when the economy has enormous slack capacity.

Interestingly and alternately, Professor Robert Barro has found empirical support for the proposition that tax rate reductions will increase real GDP.