The effects of fiscal policy in Italy: Evidence from a VAR model

Giordano, Raffaela; Momigliano, Sandro; Neri, Stefano; Perotti, Roberto

doi:10.1016/j.ejpoleco.2006.10.005

Cited by 292 publications

(139 citation statements)

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“…Despite a very small positive effect in the first quarters, GDP, private consumption and private investment fall, suggesting a 'crowding-out' effect and a 'NonKeynesian' pattern. Government spending shocks have a positive and persistent effect on both the price level and the average cost of financing the debt, in accordance with the findings of Giordano et al (2007). Housing prices seem to be positively affected by the shock, while stock prices fall immediately after the shock but later start recovering.…”

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confidence: 76%

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The macroeconomic effects of fiscal policy

2011

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We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression (B-SVAR) approach. We identify fiscal policy shocks via a partial identification scheme, but also: (i) include the feedback from government debt; (ii) look at the impact on the composition of output; (iii) assess the effects on asset markets; (iv) use quarterly data; and (v) analyse empirical evidence from the US, the UK, Germany and Italy. The results show that government spending shocks, in general, have a small effect on Gross Domestic Product (GDP); lead to important 'crowding-out' effects; have a varied impact on housing prices and generate a quick fall in stock prices. Government revenue shocks generate a mixed effect on housing prices and a small and positive effect on stock prices. The empirical evidence also suggests that it is important to explicitly consider the government debt dynamics in the model.

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supporting

confidence: 76%

“…Heppke-Falk et al (2006) use cash data for Germany, and find that a positive shock in government spending increases output and private consumption, although the effect is relatively small. Giordano et al (2007) show that, in Italy, government expenditure has positive and persistent effects on output and on private consumption.…”

mentioning

confidence: 99%

The macroeconomic effects of fiscal policy

2011

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“…Researchers using mainly Structural Vector Autoregression (SVAR) models, find that positive shocks on government spending stimulate output at least in the short run (e.g., Blanchard and Perotti 2002;Cimadomo and Bénassy-Quéré 2012;Giordano et al 2007). Moreover, there is evidence that positive shocks on taxes suppress output (e.g., Blanchard and Perotti 2002;Alesina et al 2012;Cimadomo and Bénassy-Quéré 2012;Cavallari and Romano 2017).…”

Section: Introductionmentioning

confidence: 99%

Size Effects of Fiscal Policy and Business Confidence in the Euro Area

Michail

Savva

Koursaros

2017

IJFS

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Abstract:In the aftermath of the European sovereign debt crisis (2009)(2010)(2011)(2012)(2013)(2014), the management of expectations has risen in importance. However, policy responses have emphasized the management of fiscal spending without examining the impact changes in the business confidence have on the economy. This paper uses a Factor-Augmented Vector Autoregressive specification, which allows for a larger information set covering both domestic and international developments, to measure the responses of five Euro Area economies to a one percent shock in government consumption and business confidence. The evidence suggests that even though the response to a government consumption shock is strong, a shock in expectations has an even greater effect. This points out to the fact that perceptions about the future and trust in the policymaker are much more important than previously considered. Thus, especially in (but not limited to) times of turbulence, or during efforts of stabilization and/or structural reforms, more emphasis should be placed on the overall credibility of the decisions, which could help to mitigate any potential adverse effects from the policies.

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“…Giordano et al (2007) find positive and statistically significant effects for Italy. Likewise, Marcellino (2002) who, like Giordano et al (2007), uses Italian data also finds positive effects which are difficult to reconcile with the remaining studies. He suggests that this may be a consequence of the improvement in the government deficit as the spending response to the tax shock is close to zero.…”

Section: Time Series Studiesmentioning

confidence: 79%

What Does Ex-Post Evidence Tell Us About the Output Effects of Future Tax Reforms?

Kneller

Misch

2011

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp11029.pdf Non-Technical SummaryAs a result of the global economic recession there is renewed interest in the effects of taxation on economic performance: many countries attempted to use tax cuts as a means to stimulate aggregate demand and now require future tax increases to reduce large public sector deficits partly in response to the crisis. Correctly forecasting the short-run output effects and the long-run growth impact of such tax changes is central from a policy perspective. In practice however, this task is complex: tax changes affect output through a number of transmission channels, and they impact both on demand and supply conditions.There is a large empirical literature estimating the effects of tax changes ex-post that is a potentially useful source of information for policy makers. These studies can be broadly grouped according to whether they present structural estimates, which mostly refer to the medium-and long-run relationships and employ panel methods, or whether they are based on time series for particular countries, generally refer to shorter run effects, make few structural assumptions and are primarily based on vector auto regressions. Both strands of the literature and the short-and long-run effects of tax changes are usually considered separately, even though from a policy perspective and to understand potential trade-offs, this division is not justified. However, irrespective of this distinction a general conclusion would be that, while most studies agree that changes in at least some types of taxation are associated with changes in growth rates or output levels in the short and long run, studies neither agree on the magnitude nor on the direction of the effects.The objective of this paper is to summarize and to evaluate existing ex-post evidence on the shortand long-run output effects (i.e. short-run tax multipliers and long-run growth effects) effects of changes in taxation from the point of view of a policy maker in an OECD country who wishes to predict the output effects of a tax reform ex-ante. For this reason we propose a set of criteria against which we evaluate existing evidence that will ensure distinctness from a more traditional literature review. In particular, a given parameter estimate is useful for predicting the effects of tax reforms according to whether 1) it is relevant, 2) it can be replicated and 3) it is robust and reliable. Whil...

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The effects of fiscal policy in Italy: Evidence from a VAR model

Cited by 292 publications

References 10 publications

The macroeconomic effects of fiscal policy

The macroeconomic effects of fiscal policy

Size Effects of Fiscal Policy and Business Confidence in the Euro Area

What Does Ex-Post Evidence Tell Us About the Output Effects of Future Tax Reforms?

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