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Macroeconomic effects of fiscal policy in the European Union: a GVAR model

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  • Alejandro Ricci-Risquete

    ()

  • Julián Ramajo-Hernández

    ()

Abstract

What are the consequences of a fiscal policy measure implemented in a Member State on the rest of the European Union (EU)? Should or should not EU countries coordinate their fiscal policies? Given this starting point, we study the economic consequences of shocks to fiscal variables in the EU countries from both domestic and global perspectives. With that objective in mind, we specify and estimate a global vector autoregressive model (GVAR) for fourteen countries of the former EU15 and the United States (USA), using quarterly macroeconomic, monetary and fiscal data from 1978 to 2009. Unlike other GVAR models with fiscal variables, in our study we consider total public receipts and total public expenditure separately, and model not only the euro area economies but also all countries of the former EU15 (except Luxembourg) and the USA. The results of our simulations show that the responses of real GDP to a negative (positive) domestic/global shock to total public expenditure (total public receipts) seem to be negative (positive) for the analyzed economies. The effects of domestic shocks would be larger in the country of origin of the shock, while their spillover effects would be limited. The effects of global shocks reveal a remarkable degree of similarity in the cyclical behavior of the European economies. As policy recommendations, we suggest boosting the slow process of coordination of fiscal actions in the EU in order to avoid unwanted economic consequences. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Alejandro Ricci-Risquete & Julián Ramajo-Hernández, 2015. "Macroeconomic effects of fiscal policy in the European Union: a GVAR model," Empirical Economics, Springer, vol. 48(4), pages 1587-1617, June.
  • Handle: RePEc:spr:empeco:v:48:y:2015:i:4:p:1587-1617
    DOI: 10.1007/s00181-014-0843-5
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    References listed on IDEAS

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    1. repec:bla:scotjp:v:66:y:2019:i:1:p:54-93 is not listed on IDEAS
    2. repec:eee:reveco:v:49:y:2017:i:c:p:102-111 is not listed on IDEAS
    3. Ansgar H. Belke & Thomas U. Osowski, 2019. "Measuring fiscal spillovers in EMU and beyond: A Global VAR approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 54-93, February.
    4. Natoli, Filippo & Metelli, Luca, 2018. "The international transmission of US fiscal shocks," MPRA Paper 84207, University Library of Munich, Germany.
    5. Ricci-Risquete, Alejandro & Ramajo, Julián, 2015. "The effects of fiscal policy on the Spanish economy: Keynesian or non-Keynesian behavior?," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 1019-1048.
    6. repec:eee:poleco:v:55:y:2018:i:c:p:97-118 is not listed on IDEAS
    7. Markus Eller & Martin Feldkircher & Florian Huber, 2017. "How would a fiscal shock in Germany affect other European countries? Evidence from a Bayesian GVAR model with sign restrictions," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 54-77.

    More about this item

    Keywords

    Fiscal Policy; Fiscal shocks; Spillovers; Global VAR; EU; E62; E63; F41; F42; H20; H50;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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