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

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

Ricardo M. Sousa

University of Minho; Economic Policies Research Unit (NIPE); London School of Economics & Political Science (LSE) - Financial Markets Group; London School of Economics

Multiple version iconThere are 2 versions of this paper

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

Afonso, António and Sousa, Ricardo Magalhaes, The Macroeconomic Effects of Fiscal Policy in Portugal: A Bayesian SVAR Analysis (February 10, 2009). ISEG-UTL Department of Economics Working Paper No. 09/2009/DE/UECE, University of Minho, NIPE Working Paper No. 3/2009, Available at SSRN: https://ssrn.com/abstract=1337945 or http://dx.doi.org/10.2139/ssrn.1337945

António Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

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UECE (Research Unit on Complexity and Economics) ( email )

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ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

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REM - Research in Economics and Mathematics ( email )

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Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

Ricardo Magalhaes Sousa

University of Minho ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

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London WC2A 2AE
United Kingdom

London School of Economics ( email )

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London, WC2A 2AE
United Kingdom

HOME PAGE: http://econ.lse.ac.uk

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