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Long-term effects of fiscal policies in Portugal

Author

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  • Alfredo Marvão Pereira
  • Oriol Roca-Sagalés

Abstract

Purpose - This paper seeks to estimate the long-term effects on output of different fiscal policies in Portugal. Design/methodology/approach - Results are obtained from accumulated impulse response functions associated with unrestricted VAR models that include several public spending and taxation variables in addition to output. Findings - Empirical results suggest that the effects of fiscal policies are within the Keynesian paradigm for public investment and direct taxation. In turn, non-Keynesian effects dominate in the case of intermediate public consumption and indirect taxation where the effects are negligible. Practical implications - Cuts in public consumption and increases in indirect taxations seem to be the most desirable instruments for fiscal consolidation in Portugal. Also, deficit-neutral policies that offset increases in public investment with increases in indirect taxes have long-term positive effects on output. The same is true for cuts in direct taxation offset with cuts in all forms of public spending except for public investment. Originality/value - This is one of the few papers in this literature to use disaggregated public spending and taxation data. It is also a seminal application to the Portuguese case.

Suggested Citation

  • Alfredo Marvão Pereira & Oriol Roca-Sagalés, 2011. "Long-term effects of fiscal policies in Portugal," Journal of Economic Studies, Emerald Group Publishing, vol. 38(1), pages 114-127, January.
  • Handle: RePEc:eme:jespps:v:38:y:2011:i:1:p:114-127
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    Cited by:

    1. Ricardo Silva & Vitor Manuel Carvalho & Ana Paula Ribeiro, 2013. "How large are fiscal multipliers? A panel-data VAR approach for the Euro area," FEP Working Papers 500, Universidade do Porto, Faculdade de Economia do Porto.
    2. Şen, Hüseyin & Kaya, Ayşe, 2015. "Growth enhancing effect of discretionary fiscal policy shocks: Keynesian, Weak Keynesian or Non-Keynesian?," MPRA Paper 65976, University Library of Munich, Germany, revised 05 Aug 2015.
    3. Joseph David Barroso Vasconcelos de Deus & Helder Ferreira de Mendonça, 2015. "Empirical evidence on fiscal forecasting in Eurozone countries," Journal of Economic Studies, Emerald Group Publishing, vol. 42(5), pages 838-860, October.
    4. Manuel Coutinho Pereira & Lara Wemans, 2013. "Output effects of fiscal policy in Portugal: a structural VAR approach," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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    Keywords

    Fiscal policy; Budgetary control; Portugal;

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