Fiscal Policy and Growth: Do Financial Crises Make a Difference?

Abstract:     
In this paper we assess to what extent in the existence of a financial crisis, government spending can contribute to mitigate economic downturns in the short run and whether such impact differs in crisis and non crisis times. We use panel analysis for a set of OECD and non-OECD countries for the period 1981-2007. The fiscal multiplier for the full sample for instrumented regular and crisis spending is about 0.6-0.8 considering the sample average government spending share of GDP of about one third. Altogether, we cannot reject the hypothesis that crisis spending and regular spending have the same impact using a variation of controls, sub-samples and specifications.

Number of Pages in PDF File: 42

Keywords: fiscal policy, financial crisis, growth, OECD, EU, panel analysis

JEL Classification: C23, E62, E44, F43, H50

working papers series