The Effects of Fiscal Policy in Italy: Evidence from a VAR Model

51 Pages Posted: 16 Mar 2008

See all articles by Sandro Momigliano

Sandro Momigliano

Bank of Italy

Raffaela Giordano

Bank of Italy

Stefano Neri

Bank of Italy

Roberto Perotti

Bocconi University - Department of Economics; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

Date Written: January 2008

Abstract

This paper studies the effects of fiscal policy on private GDP, inflation and the long-term interest rate in Italy using a structural vector autoregression model. To this end, a database of quarterly cash data for selected fiscal variables for the period 1982:1-2004:4 is constructed, largely relying on the information contained in the Italian Treasury Quarterly Reports. The main results of the study can be summarized as follows. A shock to government purchases of goods and services has a sizeable and robust effect on economic activity: an exogenous one per cent (in terms of private GDP) shock increases private real GDP by 0.6 per cent after 3 quarters. The response goes to zero after two years, reflecting with a lag the low persistence of the shock. The effects on employment, private consumption and investment are also positive. The response of inflation is positive but small and short-lived. In contrast, public wages, which in many studies are lumped together with purchases, have no significant effect on output, while the effects on employment turn negative after two quarters. Shocks to net revenue have negligible effects on all the variables.

Keywords: Fiscal policy, Government spending, Fiscal multipliers, VAR

JEL Classification: E62, H30

Suggested Citation

Momigliano, Sandro and Giordano, Raffaela and Neri, Stefano and Perotti, Roberto, The Effects of Fiscal Policy in Italy: Evidence from a VAR Model (January 2008). Bank of Italy Temi di Discussione (Working Paper) No. 656. Available at SSRN: https://ssrn.com/abstract=1105745 or http://dx.doi.org/10.2139/ssrn.1105745

Sandro Momigliano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Raffaela Giordano

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Stefano Neri

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy
+39 06 4792 2821 (Phone)

Roberto Perotti

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

European University Institute - Economics Department (ECO) ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
411
Abstract Views
2,038
rank
72,222
PlumX Metrics