The Effects of Fiscal Shocks with Debt-Stabilizing Budgetary Policies in Italy

52 Pages Posted: 24 Feb 2012

Date Written: November 23, 2011

Abstract

We study the effects of fiscal policy on macroeconomic developments in Italy over the period 1982-2010 with a Structural Vector Autoregression (SVAR) model. We include public debt and impose the government budget constraint in the estimation. In contrast with previous research we also include foreign demand, significantly improving estimation accuracy. We find that movements in debt induce stabilizing reactions in fiscal policy. In this context, expenditure and revenue shocks have significant effects on economic activity; these are stronger, as well as more precisely estimated and robust, for expenditure. Expenditure multipliers are higher when we exclude from our sample the initial years and, in particular, when we focus on the post-Maastricht period.

Keywords: fiscal policy, public debt, foreign demand, fiscal multipliers, VAR

JEL Classification: E62, H30

Suggested Citation

Caprioli, Francesco and Momigliano, Sandro, The Effects of Fiscal Shocks with Debt-Stabilizing Budgetary Policies in Italy (November 23, 2011). Bank of Italy Temi di Discussione (Working Paper) No. 839. Available at SSRN: https://ssrn.com/abstract=2009924 or http://dx.doi.org/10.2139/ssrn.2009924

Francesco Caprioli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Sandro Momigliano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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