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The effects of fiscal shocks with debt-stabilizing budgetary policies in Italy

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Author Info

  • Francesco Caprioli

    ()
    (Bank of Italy)

  • Sandro Momigliano

    ()
    (Bank of Italy)

Abstract

We study the effects of fiscal policy on macroeconomic developments in Italy over the period 1982-2010 with a Structural Vector Autoregression (SVAR) model. We include public debt and impose the government budget constraint in the estimation. In contrast with previous research we also include foreign demand, significantly improving estimation accuracy. We find that movements in debt induce stabilizing reactions in fiscal policy. In this context, expenditure and revenue shocks have significant effects on economic activity; these are stronger, as well as more precisely estimated and robust, for expenditure. Expenditure multipliers are higher when we exclude from our sample the initial years and, in particular, when we focus on the post-Maastricht period.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 839.

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Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bdi:wptemi:td_839_11

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Web page: http://www.bancaditalia.it
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Keywords: fiscal policy; public debt; foreign demand; fiscal multipliers; VAR.;

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Cited by:
  1. Oscar Parkyn & Tugrul Vehbi, 2013. "The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints," Treasury Working Paper Series 13/02, New Zealand Treasury.
  2. Bernardi, L., 2012. "Heterogeneity of taxation in EA Member countries and some implications for EA fiscal governance," MPRA Paper 40050, University Library of Munich, Germany.
  3. Magazzino, Cosimo, 2012. "Wagner versus Keynes: Public spending and national income in Italy," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 890-905.

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