This paper examines the effectiveness of public spending in different phases of the business cycle through a state-dependent macroeconomic model. We estimate a two-agent New-Keynesian (TANK) model with sticky wages in a Markov-switching framework for the U.S. economy (1960–2013). The model extends Gali, L´opez-Salido, and Vall´es 2007 by incorporating wage rigidity as in Colciago 2011. Our findings indicate that the share of hand-to-mouth agents (?) plays a crucial role in determining fiscal multipliers, with higher ? values associated with recessions and stronger public spending effects. While monetary policy regime shifts influence outcomes, ? remains the key driver of multiplier heterogeneity. Our results suggest that temporary fiscal interventions during downturns yield the highest impact, reconciling elements of both neoclassical and New-Keynesian perspectives. These insights have important policy implications for the design of countercyclical fiscal policies.
 

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