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In search of the Euro area fiscal stance
Date Issued
2016-08
Date Available
2016-09-02T14:19:51Z
Abstract
This paper investigates the role of fiscal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumptions, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also find that, in spite of their potentially strong effects, fiscal policies were substantially muted during the EMU years. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate effect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
23
Series
UCD Centre for Economic Research Working Paper Series
WP2016/12
Classification
C11
C13
C32
E21
E32
E37
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
File(s)
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Name
WP16_12.pdf
Size
628.67 KB
Format
Adobe PDF
Checksum (MD5)
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