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The effetcs of fiscal policy in Italy: Evidence from a VAR model

Author

Listed:
  • Raffaela Giordano

    () (Bank of Italy, Economic Research and International Relations)

  • Sandro Momigliano

    () (Bank of Italy, Economic Research and International Relations)

  • Stefano Neri

    () (Bank of Italy, Economic Research and International Relations)

  • Roberto Perotti

    () (IGIER- Bocconi University)

Abstract

This paper studies the effects of fiscal policy on private GDP, inflation and the long-term interest rate in Italy using a structural vector autoregression model. To this end, a database of quarterly cash data for selected fiscal variables for the period 1982:1-2004:4 is constructed, largely relying on the information contained in the Italian Treasury Quarterly Reports. The main results of the study can be summarized as follows. A shock to government purchases of goods and services has a sizeable and robust effect on economic activity: an exogenous one per cent (in terms of private GDP) shock increases private real GDP by 0.6 per cent after 3 quarters. The response goes to zero after two years, reflecting with a lag the low persistence of the shock. The effects on employment, private consumption and investment are also positive. The response of inflation is positive but small and short-lived. In contrast, public wages, which in many studies are lumped together with purchases, have no significant effect on output, while the effects on employment turn negative after two quarters. Shocks to net revenue have negligible effects on all the variables.

Suggested Citation

  • Raffaela Giordano & Sandro Momigliano & Stefano Neri & Roberto Perotti, 2008. "The effetcs of fiscal policy in Italy: Evidence from a VAR model," Temi di discussione (Economic working papers) 656, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_656_08
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal policy; Government spending; Fiscal multipliers; VAR;

    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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