Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy

38 Pages Posted: 12 Aug 2011  

Carlo A. Favero

Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Francesco Giavazzi

Bocconi University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jacopo Perego

Bocconi University

Multiple version iconThere are 3 versions of this paper

Date Written: August 2011

Abstract

This paper shows how the richer frequency and variety of fiscal policy shocks available in an international sample can be analyzed recognizing the heterogeneity that exists across different countries. The main conclusion of our empirical analysis is that the question 'what is the fiscal policy multiplier' is an ill-posed one. There is no unconditional fiscal policy multiplier. The effect of fiscal policy on output is different depending on the different debt dynamics, the different degree of openness and the different fiscal reaction functions across different countries. There are many fiscal multipliers and an average fiscal multiplier is of very little use to describe the effect of exogenous shifts in fiscal policy on output.

Keywords: fiscal policy, global VAR models, government budget constraint, public debt

JEL Classification: E62, H60

Suggested Citation

Favero, Carlo A. and Giavazzi, Francesco and Perego, Jacopo, Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy (August 2011). CEPR Discussion Paper No. DP8517. Available at SSRN: https://ssrn.com/abstract=1908565

Carlo A. Favero (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://www.igier.unibocconi.it\favero

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Francesco Giavazzi

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Jacopo Perego

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

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