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Fiscal multipliers in turbulent times: the case of Spain

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  • Pablo Hernández de Cos

    (Banco de España)

  • Enrique Moral-Benito

    (Banco de España)

Abstract

What are the output responses to fiscal policy? Despite important advances reported in the literature, quantifying the size of the fiscal multiplier remains a challenge. Indeed, the quest to estimate a unique fiscal multiplier is probably an ill-posed one. The magnitude of the multiplier may well depend on country- and time-specific characteristics of the fiscal stance under scrutiny. In this paper, we estimate state-specific multipliers for Spain depending on the state of the economy in several of its dimensions. The government spending multiplier is estimated to be larger during recessions and periods of banking stress, but much smaller (or even negative) during periods of weak public finances. Combining these three dimensions into a single global turmoil indicator by the use of principal component analysis, the estimated multipliers are 1.4 for crisis (or turbulent) times and 0.6 for tranquil times

Suggested Citation

  • Pablo Hernández de Cos & Enrique Moral-Benito, 2013. "Fiscal multipliers in turbulent times: the case of Spain," Working Papers 1309, Banco de España.
  • Handle: RePEc:bde:wpaper:1309
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    Cited by:

    1. Gabriela Castro & José R. Maria & Paulo Júlio & Ricardo Mourinho Félix, 2013. "Fiscal multipliers in a small euro area economy: How big can they get in crisis times?," Working Papers w201311, Banco de Portugal, Economics and Research Department.
    2. Belke Ansgar & Kronen Dominik & Osowski Thomas, 2015. "Planned Fiscal Consolidations and Growth Forecast Errors – New Panel Evidence on Fiscal Multipliers," Review of Economics, De Gruyter, vol. 66(1), pages 47-70, April.
    3. Silvia Albrizio & José Federico Geli, 2021. "An empirical analysis of the determinants that can boost next generation EU´s effectiveness," Economic Bulletin, Banco de España, issue 4/2021, pages 1-9.
    4. Thomas Warmedinger & Cristina Checherita-Westphal & Pablo Hernández de Cos, 2015. "Fiscal Multipliers and Beyond," Hacienda Pública Española / Review of Public Economics, IEF, vol. 215(4), pages 139-168, December.
    5. van der Wielen, Wouter, 2020. "The macroeconomic effects of tax changes: Evidence using real-time data for the European Union," Economic Modelling, Elsevier, vol. 90(C), pages 302-321.
    6. Aitor Erce, 2014. "Banking on seniority: the IMF and the sovereign’s creditors," Globalization Institute Working Papers 175, Federal Reserve Bank of Dallas.
    7. Alpalhão, Henrique & Lopes, Marta & Pereira Santos, João & Tavares, José, 2020. "Public Expenditure and Private Firm Performance: Using Religious Denominations for Causal Inference," CEPR Discussion Papers 14448, C.E.P.R. Discussion Papers.
    8. Theodore Mariolis & Nikolaos Ntemiroglou & George Soklis, 2018. "The static demand multipliers in a joint production framework: comparative findings for the Greek, Spanish and Eurozone economies," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-20, December.
    9. Papaioannou, Sotiris K., 2019. "The effects of fiscal policy on output: Does the business cycle matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 27-36.
    10. Javier Andrés & José E. Boscá & Javier Ferri, 2016. "Instruments, rules, and household debt: the effects of fiscal policy," Oxford Economic Papers, Oxford University Press, vol. 68(2), pages 419-443.
    11. 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.
    12. Agata Szymańska, 2018. "Wpływ polityki fiskalnej na PKB w krajach Unii Europejskiej spoza strefy euro," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 49-74.
    13. Hondroyiannis, George & Papaoikonomou, Dimitrios, 2015. "When does it pay to tax? Evidence from state-dependent fiscal multipliers in the euro area," Economic Modelling, Elsevier, vol. 48(C), pages 116-128.
    14. Ionel LEONIDA, 2019. "Influences Of Institutional Factors On The Dimension Of Fiscal And Budgetary Multipliers In Romania For The Period 2006 – 2017," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 4(3), pages 47-53.
    15. Sukanya Bose & N.R. Bhanumurthy, 2015. "Fiscal Multipliers for India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 9(4), pages 379-401, November.
    16. Glocker, Christian & Sestieri, Giulia & Towbin, Pascal, 2019. "Time-varying government spending multipliers in the UK," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 180-197.
    17. Borsi, Mihály Tamás, 2018. "Fiscal multipliers across the credit cycle," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 135-151.
    18. Danilo Leiva-Leon, 2017. "Monitoring the Spanish Economy through the Lenses of Structural Bayesian VARs," Occasional Papers 1706, Banco de España.
    19. Nicoletta Batini & Luc Eyraud & Miss Anke Weber, 2014. "A Simple Method to Compute Fiscal Multipliers," IMF Working Papers 2014/093, International Monetary Fund.
    20. Jose Francisco Bellod Redondo, 2015. "Plan E: la estrategia keynesiana frente a la crisis en España," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 20, pages 4-22.
    21. Lago Peñas, Santiago & Vaquero-Garcia, Alberto & Sanchez-Fernandez, Patricio & Lopez-Bermudez, Beatriz, 2019. "Does fiscal consolidation hurt economic growth? Empirical evidence from Spanish regions," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW), vol. 13, pages 1-19.
    22. Constantinos Alexiou & Joseph G. Nellis, 2017. "Cyclical Multiplier and Zero Low Bound Effects of Government Expenditure on Economic Growth: Evidence for Greece," Australian Economic Papers, Wiley Blackwell, vol. 56(2), pages 119-133, June.
    23. Francisco de Castro & Francisco Martí & Antonio Montesinos & Javier J. Pérez & A. Jesús Sánchez-Fuentes, 2014. "Fiscal policies in Spain: Main stylises facts revisited," Working Papers 1408, Banco de España.
    24. José Francisco Bellod Redondo, 2017. "Prestaciones por desempleo y tasa de paro en España," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 23, pages 60-81.
    25. Sébastien Charles & Thomas Dallery & Jonathan Marie, 2015. "Why the Keynesian Multiplier Increases During Hard Times: A Theoretical Explanation Based on Rentiers' Saving Behaviour," Metroeconomica, Wiley Blackwell, vol. 66(3), pages 451-473, July.

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    Keywords

    fiscal policy; fiscal multiplier;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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