Regional multipliers across the Italian regions

This paper estimates the multipliers of different types of government spending in the 20 Italian administrative regions throughout 1994–2016. We estimate region-specific multipliers through a Bayesian random effect panel vector autoregressive model. We find that the EU structural funds, compared to the other types of government spending, provide the largest and most pervasively significant GDP multipliers, whereas the effectiveness of nationally funded government investment and government consumption shocks is limited to certain regions. We also find substitutability between EU structural funds and other expenditure variables, which runs counter to the principle of additionality of the EU cohesion policy. An exploratory analysis of the distribution of multipliers across regions and expenditure types suggests that multiplier values are positively associated with the amount of unused resources as well as with the region size.