The Macroeconomic Effects of Fiscal Policy in Portugal: A Bayesian SVAR Analysis
ISEG-UTL Department of Economics Working Paper No. 09/2009/DE/UECE
University of Minho, NIPE Working Paper No. 3/2009
31 Pages Posted: 5 Feb 2009 Last revised: 11 Feb 2009
There are 2 versions of this paper
The Macroeconomic Effects of Fiscal Policy in Portugal: A Bayesian SVAR Analysis
The Macroeconomic Effects of Fiscal Policy in Portugal: A Bayesian SVAR Analysis
Date Written: February 10, 2009
Abstract
In the last twenty years Portugal struggled to keep public finances under control, notably in containing primary spending. We use a new quarterly dataset covering 1979:1-2007:4, and estimate a Bayesian Structural Autoregression model to analyze the macroeconomic effects of fiscal policy. The results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to important "crowding-out" effects, by impacting negatively on private consumption and investment; and have a persistent and positive effect on the price level and the average cost of financing government debt. Positive government revenue shocks tend to have a negative impact on GDP; and lead to a fall in the price level. The evidence also shows the importance of explicitly considering the government debt dynamics in the model. Finally, a VAR counter-factual exercise confirms that unexpected positive government spending shocks lead to important "crowding-out" effects.
Keywords: B-SVAR, fiscal policy, debt dynamics, Portugal
JEL Classification: E37, E62, H62, G10
Suggested Citation: Suggested Citation
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