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Government investment fiscal multipliers: evidence from Euro-area countries

Published online by Cambridge University Press:  18 October 2021

Matteo Deleidi ,
Francesca Iafrate  and
Enrico Sergio Levrero
Matteo Deleidi*
Affiliation:
Institute for Innovation and Public Purpose, University College London, London, UK Department of Statistical Sciences, Sapienza University of Rome, Rome, Italy
Francesca Iafrate
Affiliation:
Department of Economics and Management, University of Florence, Florence, Italy
Enrico Sergio Levrero
Affiliation:
Roma Tre University, Department of Economics, Rome, Italy
*
*Corresponding author. Email: m.deleidi@ucl.ac.uk
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Abstract

This paper aims to estimate the government investment fiscal multipliers in select European countries for the period 1970–2016. To do this, we combine Structural Vector Autoregression (SVAR) modeling with the Local Projections (LP) approach. We estimate models by also controlling for fiscal foresight, excluding the postcrisis period and distinguishing between Northern and Southern countries. Our findings suggest that an increase in government investment generates a “Keynesian effect” by engendering positive and permanent effects on the GDP level, even when government expenditure expectations are considered. Fiscal multipliers are close to 1 on impact and increase in the years after the implementation of a discretionary fiscal policy.

Keywords

Fiscal multipliersgovernment investmentlocal projectionsEuro areaH50H54E60E62
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 2 , March 2023 , pp. 331 - 349
Copyright
© Cambridge University Press 2021

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