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The economic effects of fiscal policy: The case of Spain

  • 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. Francisco de Castro, 2006. "The macroeconomic effects of fiscal policy in Spain," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 913-924.
  2. Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
  3. Marcellino, Massimiliano, 2006. "Some stylized facts on non-systematic fiscal policy in the Euro area," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 461-479, September.
  4. Andrew Mountford & Harald Uhlig, 2008. "What are the Effects of Fiscal Policy Shocks?," NBER Working Papers 14551, National Bureau of Economic Research, Inc.
  5. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2006. "Trade spill-overs of fiscal policy in the European Union: a panel analysis," Economic Policy, CEPR;CES;MSH, vol. 21(48), pages 639-687, October.
  6. Francisco de Castro & José Manuel González-Páramo & Pablo Hernández de Cos, 2004. "Fiscal consolidation in Spain: dynamic interdependence of public spending and revenues," Investigaciones Economicas, Fundación SEPI, vol. 28(1), pages 193-207, January.
  7. 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.
  8. Jonas Fisher, 2000. "Assessing the Effects of Fiscal Shocks," Econometric Society World Congress 2000 Contributed Papers 1499, Econometric Society.
  9. Massimo Giuliodori & Roel Beetsma, 2005. "What are the Trade Spill-Overs from Fiscal Shocks in Europe? An Empirical Analysis**," De Economist, Springer, vol. 153(2), pages 167-197, 06.
  10. 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.
  11. 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.
  12. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122 National Bureau of Economic Research, Inc.
  13. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
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  15. 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.
  16. Favero, Carlo A., 2002. "How do European Monetary and Fiscal Authorities Behave?," CEPR Discussion Papers 3426, C.E.P.R. Discussion Papers.
  17. Jerome Henry & Pablo Hernandez de Cos & Sandro Momigliano, 2004. "The short-term impact of government budgets on prices; evidence from macroeconometric models," Temi di discussione (Economic working papers) 523, Bank of Italy, Economic Research and International Relations Area.
  18. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
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  20. Giancarlo Corsetti & Gernot J. Müller, 2005. "Twin Deficits: Squaring Theory, Evidence and Common Sense," Economics Working Papers ECO2005/22, European University Institute.
  21. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
  22. Stefano Neri, 2001. "Assessing the effects of monetary and fiscal policy," Temi di discussione (Economic working papers) 425, Bank of Italy, Economic Research and International Relations Area.
  23. Bouthevillain, C. & Van Den Dool, G. & Langenus, G. & Mohr, M. & Momigliano, S. & Tujula, M. & De Cos, P.H. & Cour-Thimann, Philippine, 2001. "Cyclically Adjusted Budget Balances: an Alternative Approach," Papers 77, Quebec a Montreal - Recherche en gestion.
  24. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
  25. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
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