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Fiscal multipliers in turbulent times: the case of Spain

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  • Pablo Hernández de Cos

    ()
    (Banco de España)

  • Enrique Moral-Benito

    ()
    (Banco de España)

Abstract

What are the output responses to fiscal policy? Despite important advances reported in the literature, quantifying the size of the fiscal multiplier remains a challenge. Indeed, the quest to estimate a unique fiscal multiplier is probably an ill-posed one. The magnitude of the multiplier may well depend on country- and time-specific characteristics of the fiscal stance under scrutiny. In this paper, we estimate state-specific multipliers for Spain depending on the state of the economy in several of its dimensions. The government spending multiplier is estimated to be larger during recessions and periods of banking stress, but much smaller (or even negative) during periods of weak public finances. Combining these three dimensions into a single global turmoil indicator by the use of principal component analysis, the estimated multipliers are 1.4 for crisis (or turbulent) times and 0.6 for tranquil times

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1309e.pdf
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1309.

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Length: 50 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:bde:wpaper:1309

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Keywords: fiscal policy; fiscal multiplier;

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References

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  1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
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Cited by:
  1. Bose, Sukanya & Bhanumurthy, N.R., 2013. "Fiscal Multipliers for India," Working Papers 13/125, National Institute of Public Finance and Policy.
  2. Erce, Aitor, 2014. "Banking on seniority: the IMF and the sovereign’s creditors," Globalization and Monetary Policy Institute Working Paper 175, Federal Reserve Bank of Dallas.

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