Fiscal Policy Spillovers

Oriol Carreras (), Simon Kirby, Iana Liadze and Rebecca Piggott ()

No 468, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper uses the National Institute Global Econometric Model (NiGEM) to quantify the magnitude of fiscal spillover multipliers in each Euro Area country following a fiscal shock to one particular Euro Area country. Spillover multipliers lie between 0.01 and 0.3 per cent when the fiscal shock takes place in Germany. These estimates correlate with the degree of trade linkages between Euro Area countries and on the elasticity of imports to total final expenditure of each country. Our analysis suggests that fiscal spillovers arising from government spending measures are larger than those arising from changes in taxation. Our fiscal spillover estimates increase by 20 to 50 per cent when the proportion of liquidity constrained agents increases by 25 per cent, our proxy for a "crisis time" scenario. We find that fiscal multipliers increase and fiscal spillovers decrease when we decompose total final expenditure in our import equations to allow for varying import intensities across its components.

Date: 2016-10
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:468

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