long‐run objectives of the policy) is threatened when debt is high and of moderate maturity (between 2 and 7 years), which is indeed the maturity for most European countries.<sup>3</sup> This is a crucial policy message because most European countries (with the notable exception of the United Kingdom) feature high debt levels and average debt maturities falling within this range. Eusepi and Preston (2018b) show that, even under an aggressive monetary policy, debt levels and maturities comparable to the European ones would have prevented the US economy from the Great Moderation. Turning to the VAR empirical side, Rossi and Zubairy (2011) and Canova and Pappa (2011) show that fiscal multipliers tend to be larger when positive spending shocks are accompanied by a decline in the real interest rate.

A number of studies have looked at the size of multipliers under different macroeconomic conditions. After analyzing a quarterly data set on government expenditures for 44 countries (20 high-income and 24 developing) from 1960 to 2007, Ilzetzki _et al._ (2013) conclude that the fiscal multiplier is relatively large in economies operating under a predetermined exchange rate, but it is zero in economies operating under flexible exchange rates. They also find that fiscal multipliers are smaller in open economies than in closed economies and are zero in high-debt countries. The evidence, despite being intuitive, as a fixed exchange rate and the limited openness to trade may reduce potential crowding out effects, is however based on comparison between countries with different regimes rather than implying evidence _ceteris paribus_ on the shift from one regime to another for the same country.

Unfortunately, there is a substantially smaller number of studies that have focused on the determinants of the size of the public investment multipliers, particularly when it comes to developing countries, for which lack of long time series poses formidable challenges. Accordingly, crucial questions such as whether multipliers in lower-income countries should be expected to be higher or lower than in high-income ones remain still unaddressed (Batini _et al._ , 2014). Some studies suggest that multipliers are lower. These include studies finding that multipliers in lower-income countries are half the size of those in advanced economies (Sheremirov and Spirovska, 2019); are smaller in Sub-Saharan Africa than in advanced and emerging market economies (Arizala _et al._ , 2017); or are effectively zero (Kraay, 2010; Ilzetzki _et al._ , 2013). Other results are more optimistic, suggesting that public investment in developing countries would carry high returns. Namely, the theoretical notion according to which public investment multipliers should be higher or lower according to the size of the initial stock of public capital seem to be confirmed by Izquierdo _et al._ (2019). Finally, other studies suggest that one-time cash transfers in Kenya have been shown to have large impacts on consumption for recipients and large positive spillovers for non-recipient households and firms (Egger _et al._ , 2019).

The quality, quantity, and accessibility of economic infrastructure in low-income developing countries lags considerably behind those in advanced and emerging market economies (Gurara _et al._ , 2017). At the same time, public investment overall accounts for a larger share of the economy: 7.5 percent of GDP in the median low income countries, compared to 4.8 percent in emerging markets and 3.2 percent in advanced economies (Tandberg and Allen, 2020). Ganelli and Tervala (2016), modeling a public infrastructure investment shock with a temporary demand effect and a supply-side effect, the latter due to the fact that the productive capacity of firms increases with a higher infrastructure stock, find that the welfare gains of public infrastructure investment may be substantial. Notably, a dollar spent by the government for investment raises domestic welfare by the equivalent of 0.8 dollar of additional private consumption.

> 3 Typically, rational expectation‐DSGE models of inflation assign a dominant role to monetary policy and confine fiscal policy to the background. In the language of Leeper (1991), fiscal policy is ‘passive’, that is, it just determines the value of debt.

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