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The effetcs of fiscal policy in Italy: Evidence from a VAR model

Raffaela Giordano (), Sandro Momigliano, Stefano Neri () and Roberto Perotti ()
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Roberto Perotti: IGIER- Bocconi University

No 656, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper studies the effects of fiscal policy on private GDP, inflation and the long-term interest rate in Italy using a structural vector autoregression model. To this end, a database of quarterly cash data for selected fiscal variables for the period 1982:1-2004:4 is constructed, largely relying on the information contained in the Italian Treasury Quarterly Reports. The main results of the study can be summarized as follows. A shock to government purchases of goods and services has a sizeable and robust effect on economic activity: an exogenous one per cent (in terms of private GDP) shock increases private real GDP by 0.6 per cent after 3 quarters. The response goes to zero after two years, reflecting with a lag the low persistence of the shock. The effects on employment, private consumption and investment are also positive. The response of inflation is positive but small and short-lived. In contrast, public wages, which in many studies are lumped together with purchases, have no significant effect on output, while the effects on employment turn negative after two quarters. Shocks to net revenue have negligible effects on all the variables.

Keywords: Fiscal policy; Government spending; Fiscal multipliers; VAR (search for similar items in EconPapers)
JEL-codes: E62 H30 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-pub
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Journal Article: The effects of fiscal policy in Italy: Evidence from a VAR model (2007) Downloads
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