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Which Slack Matters for Fiscal Multipliers? Evidence from Italian Aggregate Data

Author

Listed:
  • Elton Beqiraj
  • Milos Ciganovic
  • Giovanni Di Bartolomeo
  • Paolo D'Imperio
  • Cristian Tegami

Abstract

We estimate state-dependent government-spending multipliers for Italy using quarterly local projections over 1961-2019. The paper asks which notion of slack matters for fiscal transmission, distinguishing short-run GDP-growth regimes from persistent labour-market slack measured by the unemployment gap. Recession multipliers are large in point estimates, peaking around 1.4, but the recession-expansion difference is not statistically significant. By contrast, labour-market slack-state multipliers rise above one at medium horizons, and the slack-tight difference becomes significant from the two-year horizon onward. Robustness checks preserve the ranking of the state-specific multipliers, although inference depends on how slack is measured. The results suggest that Italian fiscal state dependence is identified more clearly through labour-market underutilisation than through GDP-growth regimes. More generally, "bad times" are not interchangeable empirical states: the measurement of slack is central for inference on fiscal multipliers.

Suggested Citation

  • Elton Beqiraj & Milos Ciganovic & Giovanni Di Bartolomeo & Paolo D'Imperio & Cristian Tegami, 2026. "Which Slack Matters for Fiscal Multipliers? Evidence from Italian Aggregate Data," CIMEO Working Paper Series 203, Centre for Investigation and Modelling of Experimental Observations (CIMEO).
    • Handle: RePEc:ter:wpaper:00203
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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