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The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis

  • Jörn Tenhofen

    ()

    (University of Bonn)

  • Guntram B. Wolff

    ()

    (Deutsche Bundesbank, Frankfurt am Main)

  • Kirsten H. Heppke-Falk

    (Deutsche Bundesbank, Frankfurt am Main)

We investigate the effects of fiscal policy shocks on the German economy extending the SVAR approach of Blanchard and Perotti (2002). Direct government expenditure shocks are found to increase output and private consumption on impact. The output multiplier is smaller than one and is falling rather quickly reaching zero after 3 years. Government operating expenditure has sizeable positive effects on output, in the long run in particular due to public capital formation. Compensation of public employees is not effective in stimulating the economy.Government net revenue shocks do not affect output significantly. Indirect taxes have little effects, while direct taxes lower output significantly. Overall, the effects of fiscal policy are short-lived with the exception of public investment increases.

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Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 230 (2010)
Issue (Month): 3 (June)
Pages: 328-355

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Handle: RePEc:jns:jbstat:v:230:y:2010:i:3:p:328-355
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