From Okun’s Law to Fiscal Multipliers in France and Italy

Jérôme Creel () and Jonas Kaiser ()
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Jérôme Creel: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po
Jonas Kaiser: Institut Avant-garde paris

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Abstract: This paper introduces a novel application of the Updated Okun Method to estimate fiscal multipliers. By leveraging Okun's Law to compute potential output and the output gap, we construct a new measure of the fiscal stance that improves transparency and interpretability. Applying this approach to France and Italy, we find that both economies were operating below full potential for most of the sample period, and that fiscal policy was more contractionary than standard estimates suggest. Our analysis reveals significant differences in fiscal multiplier effects across the two countries, with evidence of state-dependence in France, where fiscal policy is more effective during periods of economic slack, while no such variation is observed for Italy. These findings underscore the importance of aligning fiscal policy with economic conditions, particularly in the context of public debt sustainability debates.

Keywords: Okun; fiscal multiplier; potential output; Output gap (search for similar items in EconPapers)
Date: 2025-11
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05391735v1
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