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BUSINESS UNCERTAINTY AND THE EFFECTIVENESS OF FISCAL POLICY IN GERMANY

Tim Berg ()

Macroeconomic Dynamics, 2019, vol. 23, issue 4, 1442-1470

Abstract: There are suggestions that increased uncertainty makes fiscal policy temporarily less effective. In this paper, I examine the relationship between business uncertainty and fiscal policy effectiveness in Germany. I use measures of business uncertainty that are derived from the firm-level data of the Ifo Business Climate Survey and interact them with the parameters of a structural vector autoregression to produce state-dependent spending multipliers. The impact of increased uncertainty on the spending multiplier is generally small and often statistically not significant in the short run. By contrast, I obtain a significant positive impact on the long-run multiplier. These baseline results are supported by a variety of robustness checks and specifications.

Date: 2019
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Working Paper: Business Uncertainty and the Effectiveness of Fiscal Policy in Germany (2016) Downloads
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