The macroeconomic effects of fiscal policy

Antonio Afonso and Ricardo Sousa

Applied Economics, 2012, vol. 44, issue 34, 4439-4454

Abstract: We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression (B-SVAR) approach. We identify fiscal policy shocks via a partial identification scheme, but also: (i) include the feedback from government debt; (ii) look at the impact on the composition of output; (iii) assess the effects on asset markets; (iv) use quarterly data; and (v) analyse empirical evidence from the US, the UK, Germany and Italy. The results show that government spending shocks, in general, have a small effect on Gross Domestic Product (GDP); lead to important 'crowding-out' effects; have a varied impact on housing prices and generate a quick fall in stock prices. Government revenue shocks generate a mixed effect on housing prices and a small and positive effect on stock prices. The empirical evidence also suggests that it is important to explicitly consider the government debt dynamics in the model.

Date: 2012
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Related works:
Working Paper: The macroeconomic effects of fiscal policy (2009)
Working Paper: The Macroeconomic Effects of Fiscal Policy (2008)
Working Paper: The Macroeconomic Effects of Fiscal Policy (2008)
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DOI: 10.1080/00036846.2011.591732

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