The macroeconomic effects of exogenous fiscal policy shocks in Germany: a disaggregated SVAR analysis

Guntram Wolff, Tenhofen, Jörn and Heppke-Falk, Kirsten H.

No 2006,41, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre

Abstract: We investigate the short-term effects of fiscal policy shocks on the German economy following the SVAR approach by Blanchard and Perotti (2002). We find that direct government expenditure shocks increase output and private consumption on impact with low statistical significance, while they decrease private investment, though insignificantly. For the sub-category government investment ? in contrast to government consumption ? a positive output effect is found, which is statistically significant until 12 quarters ahead. Allowing for anticipation effects of fiscal policy does not change the sign of the positive consumption response. Anticipated expenditure shocks have significant effects on output when the shock is realized, but not in the period of anticipation. In sum, effects of expenditure shocks are only short-lived. Government net revenue shocks do not affect output with statistical significance. However, when splitting up this aggregate, direct taxes lower output significantly, while small indirect tax revenue shocks have little effects. Compensation of public employees is equally not effective in stimulating the economy. --

Keywords: Fiscal policy; government spending; net revenue; policy anticipation; structural vector autoregression (search for similar items in EconPapers)
JEL-codes: H30 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
Date: 2006
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