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The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis

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  • Ricardo M. Sousa

    ()
    (Universidade do Minho - NIPE)

  • António Afonso

    ()
    (European Central Bank, Directorate General Economics)

Abstract

In the last twenty years Portugal struggled to keep public finances under control, notably in containing primary spending. We use a new quarterly dataset covering 1979:1-2007:4, and estimate a Bayesian Structural Autoregression model to analyze the macroeconomic effects of fiscal policy. The results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to important "crowding-out" effects, by impacting negatively on private consumption and investment; and have a persistent and positive effect on the price level and the average cost of financing government debt. Positive government revenue shocks tend to have a negative impact on GDP; and lead to a fall in the price level. The evidence also shows the importance of explicitly considering the government debt dynamics in the model. Finally, a VAR counter-factual exercise confirms that unexpected positive government spending shocks lead to important "crowding-out" effects.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 3/2009.

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Date of creation: 2009
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Handle: RePEc:nip:nipewp:3/2009

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Keywords: B-SVAR; fiscal policy; debt dynamics; Portugal.;

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  1. Research in fiscal policy: A cross section
    by pushmedia1 in The Ambrosini Critique on 2009-05-11 16:26:30
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