Working Paper: CEPR ID: DP8517
Authors: Carlo A. Favero; Francesco Giavazzi; Jacopo Perego
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 Codes: E62; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal policy changes (E62) | Output (Y10) |
| Debt dynamics (H63) | Output (Y10) |
| Degree of openness (F43) | Output (Y10) |
| Fiscal reaction functions (H39) | Output (Y10) |
| Fiscal policy in Canada (E62) | Output (Y10) |
| U.S. fiscal actions (E62) | Output (Y10) |
| Initial level of debt (H63) | Keynesian effects (E12) |
| Initial level of debt (H63) | Non-Keynesian effects (E12) |
| Japan's fiscal dynamics (H69) | Non-Keynesian effects (E12) |