Fiscal Multiplier Asymmetry Versus Ricardian Equivalence: A Structural Decomposition of Debt-Financed Stimulus Efficacy Across Heterogeneous Monetary Regimes

Abstract

This study critically evaluates the empirical tension between fiscal multiplier asymmetry theory and the Ricardian equivalence hypothesis within heterogeneous monetary policy regimes, spanning thirty-two OECD economies over the period 2000–2023. Employing a panel Smooth Transition Vector Autoregression (STVAR) framework augmented with time-varying fiscal stance indicators, we decompose output multipliers conditional on the monetary policy environment, debt sustainability thresholds, and cyclical positioning. Our findings reveal that debt-financed stimulus yields statistically significant positive multipliers exclusively under accommodative monetary conditions and below critical debt-to-GDP ratios of approximately 75 percent. Above this threshold, Ricardian offset effects dominate, compressing net multiplier magnitudes toward zero. These results carry direct policy implications for sovereign fiscal consolidation strategies, particularly in the post-pandemic high-debt macroeconomic landscape of 2024–2026.