Fiscal Expenditure Spillovers in the Euro Area: An Empirical and Model-Based Assessment

35 Pages Posted: 22 Apr 2020

See all articles by Mario Alloza

Mario Alloza

Banco de España

M. Ferdinandusse

European Central Bank (ECB)

Pascal Jacquinot

European Central Bank (ECB)

Katja Schmidt

Banque de France

Multiple version iconThere are 2 versions of this paper

Date Written: April, 2020

Abstract

The paper describes the main transmission channels of the spillovers of national fiscal policies to other countries within the euro area and investigates their magnitude using different models. In the context of Economic and Monetary Union (EMU), fiscal spillovers are relevant for the accurate assessment of the cyclical outlook in euro area countries, as well as in the debates on a coordinated change in the euro area fiscal stance and on a euro area fiscal capacity. The paper focuses on spillovers from expenditure-based expansions by presenting two complementary exercises. The first is an empirical investigation of spillovers based on a new, long quarterly dataset for the largest euro area countries and on new estimates based on annual data for a panel of 11 euro area countries. The second uses a multi-country general equilibrium model with a rich fiscal specification and the capacity to analyse trade spillovers. Fiscal spillovers are found to be heterogeneous but generally positive among euro area countries. The reaction of interest rates to fiscal expansions is an important determinant of the magnitude of spillovers.

Keywords: DSGE., fiscal policy, fiscal spillovers, monetary policy, VAR

Suggested Citation

Alloza, Mario and Ferdinandusse, M. and Jacquinot, Pascal and Schmidt, Katja, Fiscal Expenditure Spillovers in the Euro Area: An Empirical and Model-Based Assessment (April, 2020). ECB Occasional Paper No. 240, Available at SSRN: https://ssrn.com/abstract=3581710

Mario Alloza (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

M. Ferdinandusse

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Pascal Jacquinot

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Katja Schmidt

Banque de France ( email )

Paris
France

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