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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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    More about this item

    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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