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Non-Keynesian effects of public expenditure in Spain

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  • Francisco de Castro

Abstract

Evidence is provided of non-Keynesian effects of fiscal policy in Spain within a VAR framework. Shocks to government expenditure expand activity, although moderately, in the short term, with output multipliers slightly above one. In the medium term, however, the response of output becomes significantly negative. The two main explanations proposed in the literature seem to apply here, namely higher real interest rates as a result of higher risk premia on the demand side and higher equilibrium wage reducing entrepreneurial profits and investment accordingly on the supply side.

Suggested Citation

  • Francisco de Castro, 2003. "Non-Keynesian effects of public expenditure in Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 10(10), pages 651-655.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:10:p:651-655
    DOI: 10.1080/1350485032000136397
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    References listed on IDEAS

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    1. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(27), pages 488-545.
    2. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June.
    3. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 168, European Central Bank.
    4. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
    5. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 2008 - 2015 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
    7. Estrada, Ángel & Willman, Alpo, 2002. "The Spanish block of the ESCB-multi-country model," Working Paper Series 149, European Central Bank.
    8. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    9. Francisco de Castro & José Manuel González-Páramo & Pablo Hernández de Cos, 2004. "Fiscal consolidation in Spain: dynamic interdependence of public spending and revenues," Investigaciones Economicas, Fundación SEPI, vol. 28(1), pages 193-207, January.
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    Cited by:

    1. Rodrigo Cerda & Hermann Gonzalez & Luis Felipe Lagos, 2006. "Is fiscal policy effective? Evidence for an emerging economy: Chile 1833-2000," Applied Economics Letters, Taylor & Francis Journals, vol. 13(9), pages 575-580.
    2. Chandika Gunasinghe & E. A. Selvanathan & Athula Naranpanawa & John Forster, 2021. "Rising Income Inequality in OECD Countries: Does Fiscal Policy Sacrifice Economic Growth in Achieving Equity?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 33(6), pages 1840-1876, December.
    3. Alfredo Marvão Pereira & Oriol Roca‐Sagalés, 2011. "Long‐term effects of fiscal policies in Portugal," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 38(1), pages 114-127, January.
    4. Burger, Anton, 2006. "Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity," Department of Economics Working Paper Series 95, WU Vienna University of Economics and Business.
    5. Gunasinghe, Chandika & Selvanathan, E.A. & Naranpanawa, Athula & Forster, John, 2020. "The impact of fiscal shocks on real GDP and income inequality: What do Australian data say?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 250-270.
    6. Anton Burger & Martin Zagler, 2007. "Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity," Department of Economics Working Papers wuwp095, Vienna University of Economics and Business, Department of Economics.
    7. Anton Burger & Martin Zagler, 2008. "US growth and budget consolidation in the 1990s: was there a non-Keynesian effect?," International Economics and Economic Policy, Springer, vol. 5(1), pages 225-235, July.

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