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

Elton Beqiraj, Milos Ciganovic, Giovanni Di Bartolomeo (), Paolo D'Imperio and Cristian Tegami

No 203, CIMEO Working Paper Series from Centre for Investigation and Modelling of Experimental Observations (CIMEO)

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.

Keywords: Business cycles; state-dependent multipliers; local projections (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 E65 H30 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:00203

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