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On the Size of the Government Spending Multiplier in the Euro Area

  • Fève, Patrick
  • Sahuc, Jean-Guillaume

This article addresses the existence of a wide range of estimated government spending multipliers in a dynamic stochastic general equilibrium model of the euro area. Our estimation results and counterfactual exercises provide evidence that omitting the interactions of key ingredients at the estimation stage (such as Edgeworth complementarity/subtitutability between private consumption and government expenditures, endogenous government spending policy and general time nonseparable preferences) paves the way for potentially large biases. We argue that uncertainty on the quantitative assessments of fiscal programmes could partly originate from these biases.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 776.

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Date of creation: Apr 2013
Date of revision: Nov 2013
Publication status: Published in Oxford Economic Papers, vol. 67, n. 3, July 2015, p. 531-552.
Handle: RePEc:ide:wpaper:27173
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  10. Fève, Patrick & Matheron, Julien & Sahuc, Jean-Guillaume, 2012. "A Pitfall with DSGE-Based, Estimated, Government Spending Multipliers," IDEI Working Papers 708, Institut d'Économie Industrielle (IDEI), Toulouse.
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  20. Luc Everaert & Werner Schule, 2008. "Why It Pays to Synchronize Structural Reforms in the Euro Area Across Markets and Countries," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 356-366, June.
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