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Nontradable Goods and Fiscal Multipliers

Author

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  • Jesús Crespo Cuaresma
  • Christian Glocker

Abstract

We assess the role that nontradable goods play as a determinant of fiscal spending multipliers, making use of a two-sector model. While fiscal multipliers increase with the share of nontradable goods, an inverted U-shaped relationship exists between multiplier size and the import share. Employing an interacted panel VAR model for EU countries, we estimate the effect of the share of nontradable goods on fiscal spending multipliers. Our empirical results provide strong evidence for the predictions of the theoretical model. They imply that the drag of fiscal consolidations is on average smaller in countries with a low share of nontradable goods.

Suggested Citation

  • Jesús Crespo Cuaresma & Christian Glocker, 2020. "Nontradable Goods and Fiscal Multipliers," CESifo Working Paper Series 8541, CESifo.
  • Handle: RePEc:ces:ceswps:_8541
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    More about this item

    Keywords

    fiscal spending multiplier; nontradable goods; openness; DSGE model; interacted panel VAR model;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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