38 Pages Posted: 12 Aug 2011
Date Written: August 2011
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: 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
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