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Foresight And The Macroeconomic Impact Of Fiscal Policy: Evidence For France, Germany And Italy


  • Lilia Cavallari

    (Università degli studi Roma Tre)

  • Simone Romano

    (Università degli studi Roma Tre)


This paper provides evidence in support of the hypothesis that fiscal policy is largely anticipated and its effects depend on expectations. Based on a 2-country Bayesian VAR model between major European economies, we find that an unanticipated fiscal stimulus leads to expectations of strong deficit reversals. This in turn depresses domestic and foreign activity. Foresight shocks, on the contrary, have positive effects on domestic activity. Differences in the responses to surprise and foresight shocks reflect the role of expectations. The evidence in our study is consistent with a regime where deficit reversals are mainly based on taxation alone.

Suggested Citation

  • Lilia Cavallari & Simone Romano, 2016. "Foresight And The Macroeconomic Impact Of Fiscal Policy: Evidence For France, Germany And Italy," Working Papers 0216, CREI Università degli Studi Roma Tre, revised 2016.
  • Handle: RePEc:rcr:wpaper:02_16

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    References listed on IDEAS

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    More about this item


    fiscal policy; VAR model; fiscal spillovers; fiscal multiplier.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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