Decomposing Fiscal Multiplier Heterogeneity Under Binding Zero Lower Bound Constraints: Evidence from Panel Local Projections in High-Debt OECD Economies

Abstract

This study investigates the state-dependent behavior of fiscal multipliers in high-debt OECD economies during periods when nominal interest rates approach the zero lower bound (ZLB), a macroeconomic configuration with profound implications for discretionary fiscal stabilization policy. Employing panel local projection (LP) methods augmented with smooth transition threshold specifications across 22 OECD member states from 1995 to 2023, we isolate multiplier heterogeneity attributable to debt-to-GDP levels, output gap positioning, and monetary accommodation regimes. Our estimates reveal that government expenditure multipliers are substantially larger—averaging 1.47 on impact—under simultaneous ZLB binding and negative output gap conditions, yet contract sharply when sovereign debt exceeds 90% of GDP. Tax revenue multipliers display asymmetric non-linearity contingent on fiscal space availability. These findings carry direct implications for the calibration of counter-cyclical fiscal frameworks in post-pandemic advanced economies.