The effects of fiscal expansions: an international comparison

• Authors: Evi Pappa.
• BSE Working Paper: 409 | September 15
• Keywords: stability , fiscal policy shocks , SVARs , sign restrictions
• JEL codes: C11, E12, E32, E62, H30
• stability
• fiscal policy shocks
• SVARs
• sign restrictions

We compare the transmission of fiscal shocks in four OECD countries and in the Euro area. Fiscal shocks are identified in a SVAR by the restrictions that disturbances to government consumption, government investment and government employment increase output and deficits contemporaneously. These restrictions hold in both prototype RBC and New-Keynesian models. All spending shocks increase private consumption and employment, while the responses of private investment and the real wage are mixed. The output effects of government consumption and investment shocks are smaller than those of government employment shocks for all countries and all samples. The transmission of fiscal shocks has changed features over time.