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

Listed author(s):
  • Francesco Caprioli

    ()

    (Bank of Italy)

  • Sandro Momigliano

    ()

    (Bank of Italy)

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.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 839.

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Date of creation: Nov 2011
Handle: RePEc:bdi:wptemi:td_839_11
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