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The effects of fiscal policy on output: Does the business cycle matter?

Sotiris Papaioannou ()

The Quarterly Review of Economics and Finance, 2019, vol. 71, issue C, 27-36

Abstract: We analyze if the influence of public expenditure on output can be affected by the state of the economy. Markov Switching regression results are reported on quarterly data for Greece and suggest that the effects of government spending on output are asymmetric over the business cycle. The highest influence is observed during recessions. On the contrary, in periods of growth, this impact is negative. Given that endogeneity is a real concern for the reliability of our estimates, we perform a number of instrumental variable regressions which verify in their majority that the highest influence of public spending is observed during downturns.

Keywords: Public spending; Output; Regime switch models; Endogeneity (search for similar items in EconPapers)
JEL-codes: E32 E62 O40 (search for similar items in EconPapers)
Date: 2019
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