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The effects of fiscal shocks with debt-stabilizing budgetary policies in Italy

Author

Listed:
  • Francesco Caprioli

    () (Bank of Italy)

  • Sandro Momigliano

    () (Bank of Italy)

Abstract

We study the effects of fiscal policy on macroeconomic developments in Italy over the period 1982-2010 with a Structural Vector Autoregression (SVAR) model. We include public debt and impose the government budget constraint in the estimation. In contrast with previous research we also include foreign demand, significantly improving estimation accuracy. We find that movements in debt induce stabilizing reactions in fiscal policy. In this context, expenditure and revenue shocks have significant effects on economic activity; these are stronger, as well as more precisely estimated and robust, for expenditure. Expenditure multipliers are higher when we exclude from our sample the initial years and, in particular, when we focus on the post-Maastricht period.

Suggested Citation

  • Francesco Caprioli & Sandro Momigliano, 2011. "The effects of fiscal shocks with debt-stabilizing budgetary policies in Italy," Temi di discussione (Economic working papers) 839, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_839_11
    as

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    References listed on IDEAS

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    Cited by:

    1. Oscar Parkyn & Tugrul Vehbi, 2014. "The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints," The Economic Record, The Economic Society of Australia, vol. 90(290), pages 345-364, September.
    2. van Riet, Ad, 2018. "Financial repression and high public debt in Europe," Other publications TiSEM 3391dd73-357a-4071-825c-7, Tilburg University, School of Economics and Management.
    3. Tang, Hsiao Chink & Liu, Philip & Cheung, Eddie C., 2013. "Changing impact of fiscal policy on selected ASEAN countries," Journal of Asian Economics, Elsevier, vol. 24(C), pages 103-116.
    4. Piacentini, Paolo & Prezioso, Stefano & Testa, Giuseppina, 2015. "Effects of fiscal policy in the North and South of Italy," MPRA Paper 62372, University Library of Munich, Germany.
    5. Raffaella Basile & Bruno Chiarini & Giovanni Luca & Elisabetta Marzano, 2016. "Fiscal multipliers and unreported production: evidence for Italy," Empirical Economics, Springer, vol. 51(3), pages 877-896, November.
    6. Pietro Dallari & Antonio Ribba, 2015. "Economic Shocks and their Effects on Unemployment in the Euro Area Periphery under the EMU," Department of Economics (DEMB) 0057, University of Modena and Reggio Emilia, Department of Economics "Marco Biagi".
    7. Bernardi, L., 2012. "Heterogeneity of taxation in EA Member countries and some implications for EA fiscal governance," MPRA Paper 40050, University Library of Munich, Germany.
    8. Magazzino, Cosimo, 2012. "Wagner versus Keynes: Public spending and national income in Italy," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 890-905.

    More about this item

    Keywords

    fiscal policy; public debt; foreign demand; 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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