The macroeconomic effects of fiscal policy

Abstract

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.

Fiscal policy, employment, and output in South Africa: An open economy analysis

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Is fiscal fatigue a threat to consolidation programmes?

“…Similarly, Afonso and Jalles (2012) (1) In this context Castro (2011b) finds that the growth of real GDP per capita in the EU was not negatively affected by the implementation of fiscal rules and, consequently, the implementation of the Stability and Growth Pact was not harmful from a growth perspective. Afonso and Sousa (2012) show that government spending shocks generally have a small effect on GDP and lead to important crowding-out effects. Afonso and Sousa (2011) find that unexpected variation in fiscal policy can substantially increase the variability of housing and stock prices.…”

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“…More recently, using a Bayesian Structural Vector Autoregression approach for the U.S., the U.K., Germany, and Italy, Afonso and Sousa (2009) show that government spending shocks, in general, have a small but positive effect on GDP, have a varied effect on private consumption and private investment, reflecting the existence of important "crowding-out" effects, and in general, impact positively on the price level and on the average cost of refinancing the debt.…”