The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis

Ricardo Jorge Magalhães de Abreu Santos Sousa () and Antonio Afonso

No 3/2009, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: In the last twenty years Portugal struggled to keep public finances under control, notably in containing primary spending. We use a new quarterly dataset covering 1979:1-2007:4, and estimate a Bayesian Structural Autoregression model to analyze the macroeconomic effects of fiscal policy. The results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to important "crowding-out" effects, by impacting negatively on private consumption and investment; and have a persistent and positive effect on the price level and the average cost of financing government debt. Positive government revenue shocks tend to have a negative impact on GDP; and lead to a fall in the price level. The evidence also shows the importance of explicitly considering the government debt dynamics in the model. Finally, a VAR counter-factual exercise confirms that unexpected positive government spending shocks lead to important "crowding-out" effects.

Keywords: B-SVAR; fiscal policy; debt dynamics; Portugal. (search for similar items in EconPapers)
JEL-codes: E37 E62 H62 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2009
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Working Paper: The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis (2009)
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