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Time-varying effects of fiscal policy in Spain: a Markov-switching approach

Alejandro Ricci-Risquete, Julian Ramajo () and Francisco de Castro Fernández ()

Applied Economics Letters, 2016, vol. 23, issue 8, 597-600

Abstract: How have the effects of Spanish fiscal policy varied over time? Given this starting point, in this article we analyse the regime dependence of fiscal policy in Spain by estimating a vector autoregressive model within a Markov-switching framework. Our results indicate that Spain’s membership of the Economic and Monetary Union (EMU) is the most likely source of time variation in the fiscal outcomes. Accordingly, increases in the primary deficit-to-GDP ratio do not succeed in stimulating economic activity in the first regime; rather, unexpected upsurges in the primary deficit harm economic activity (non-Keynesian effect) in the second regime, which prevails since the ratification of the Maastricht Treaty.

Date: 2016
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DOI: 10.1080/13504851.2015.1090544

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