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The economic effects of exogenous fiscal shocks in Spain: a SVAR approach

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Author Info
Francisco de Castro () (Banco de Espana, Alcala 50, E-28014 Madrid, Spain.)
Pablo Hernández de Cos () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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Abstract

This paper estimates the effects of exogenous fiscal policy shocks in Spain in a VAR framework. Government expenditure expansionary shocks are found to have positive effects on output in the short-term at the cost of higher inflation and public deficits and lower output in the medium and long term. Tax increases are found to drag economic activity in the medium term while entailing an only temporary improvement of the public budget balance. The application of these results to the analysis of fiscal policy in Spain since the mid-nineties points to the conclusion that the consolidation process does not seem to have involved costs in terms of output growth. Moreover, the stance of fiscal policy has become more counter-cyclical in that period. JEL Classification: E62; H30.

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Paper provided by European Central Bank in its series Working Paper Series with number 647.

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Length: 55 pages
Date of creation: Jun 2006
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Handle: RePEc:ecb:ecbwps:20060647

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Keywords: VAR; fiscal shocks; fiscal multipliers.;

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Cited by:
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  1. Leif Lybecker Eskesen, 2009. "The Role for Counter-Cyclical Fiscal Policy in Singapore," IMF Working Papers 09/8, International Monetary Fund. [Downloadable!]
  2. Ricardo M. Sousa & António Afonso, 2009. "The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis," NIPE Working Papers 3/2009, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
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