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Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy

  • Carlo Favero
  • Francesco Giavazzi
  • Jacopo Perego

This paper shows how the richer frequency and variety of fiscal policy shocks available in an international sample can be analyzed recognizing the heterogeneity that exists across different countries. The main conclusion of our empirical analysis is that the question "what is the fiscal policy multiplier" is an ill-posed one. There is no unconditional fiscal policy multiplier. The effect of fiscal policy on output is different depending on the different debt dynamics, the different degree of openness and the different fiscal reaction functions across different countries. There are many fiscal multipliers and an average fiscal multiplier is of very little use to describe the effect of exogenous shifts in fiscal policy on output.

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File URL: http://www.nber.org/papers/w17272.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17272.

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Date of creation: Aug 2011
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Publication status: published as Carlo Favero & Francesco Giavazzi & Jacopo Perego, 2011. "Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy," IMF Economic Review, Palgrave Macmillan, vol. 59(4), pages 652-682, November.
Handle: RePEc:nbr:nberwo:17272
Note: IFM ME
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