Public Expenditure Multipliers in recessions. Evidence from the Eurozone

Andrea Boitani, Salvatore Perdichizzi

Risultato della ricerca: Working paper

Abstract

During the sovereign debt crisis, many Euro countries have deployed \austerity packages" implementing structural reforms and cutting government spending. Such policies should have led to an initial decline in GDP followed by recovery and a reduction of the debt to gdp ratio. Key to this outcome is the size and sign of expenditure multipliers when the economy is in a recession. We estimate, for the Eurozone countries, expenditure multipliers in recession and expansion using the linear projection approach and forecast errors to identify exogenous expenditure shocks. The empirical evidence suggests that, in a recession, an increase in government spending will be eective in boosting aggregate demand, crowding-in private consumption in the shortto- medium run, without raising the debt to gdp ratio but rather decreasing it. The opposite applies in expansions. Estimates also show that expenditure multipliers, in a recession, are larger in high debt/dect countries than in low debt/decit countries. In a recession, scal consolidation based on expenditure cuts would have both short and medium run contractionary effects.
Lingua originaleEnglish
EditoreDipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore
Numero di pagine45
Stato di pubblicazionePubblicato - 2018

Keywords

  • eurozone
  • expenditure
  • multipliers

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