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The economic effects of fiscal policy: The case of Spain

Listed author(s):
  • de Castro, Francisco
  • Hernández de Cos, Pablo

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-90s 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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164-0704(07)00108-5
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 1005-1028

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:1005-1028
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Jordi Galí & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
  2. Ángel Estrada & José Luis Fernández & Esther Moral & Ana V. Regil, 2004. "A quarterly macroeconometric model of the Spanish Economy," Working Papers 0413, Banco de España;Working Papers Homepage.
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  7. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2005. "Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis," EUI-RSCAS Working Papers 31, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  8. Francisco de Castro, 2003. "The macroeconomic effects of fiscal policy in Spain," Working Papers 0311, Banco de España;Working Papers Homepage.
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  10. Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
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  13. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 333-389.
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  19. repec:hrv:faseco:3353756 is not listed on IDEAS
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  21. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
  22. Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 0077, European Central Bank.
  23. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
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