The Effects of Fiscal Policy in Italy: Estimates with a Svar Model

42 Pages Posted: 25 Mar 2012

See all articles by Raffaela Giordano

Raffaela Giordano

Bank of Italy

Sandro Momigliano

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: March 31, 2005

Abstract

This paper studies the effects of fiscal policy on private GDP, inflation and interest rates in Italy using a structural Vector Autoregression. For this purpose a database of quarterly cash data for selected fiscal variables for the period 1982:1-2003:4 is constructed, largely on the basis of 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 raises private real GDP by 0.6 per cent after 3 quarters. The response of GDP goes to zero after two years, reflecting with a lag the low persistence of the shock. The effects on private consumption and investment are positive; the reaction of inflation is also positive but limited and short-lived. In contrast, public wages, which in many studies are lumped together with purchases, have no significant effect on GDP in the short-run; a negative and significant effect emerges after two years. The reactions of inflation and interest rates are positive and larger than in the case of a shock to purchases. Finally, shocks to net revenue have negligible effects on all the macroeconomic variables.

Keywords: Fiscal policy, Government spending, Net revenues, Vector Autoregression

JEL Classification: E62, H30

Suggested Citation

Giordano, Raffaela and Momigliano, Sandro and Neri, Stefano and Perotti, Roberto, The Effects of Fiscal Policy in Italy: Estimates with a Svar Model (March 31, 2005). Available at SSRN: https://ssrn.com/abstract=2028353 or http://dx.doi.org/10.2139/ssrn.2028353

Raffaela Giordano

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Sandro Momigliano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
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

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