Cross-border effects of fiscal policy in the Eurozone

A.C. Bicu, L.M. Lieb

Research output: Working paperProfessional

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Abstract

We empirically assess spillovers from fiscal policy in the Euro area. We propose a structural multi-country factor-augmented vector autoregression model identified with sign restrictions and analyse the domestic and international effects of fiscal policy measures. By extracting information from an extended set of country specific and cross-border variables, we are able to account for the different channels through which government expenditure shocks are transmitted within as well as across borders. We find significant negative effects of fiscal consolidations on domestic output, private consumption and investment. More importantly, spending cuts in Italy and Spain induce significant and persistent output spillovers on Germany and France.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
Number of pages43
DOIs
Publication statusPublished - 1 Jan 2015

Publication series

SeriesGSBE Research Memoranda
Number019

Cite this

Bicu, A. C., & Lieb, L. M. (2015). Cross-border effects of fiscal policy in the Eurozone. Maastricht University, Graduate School of Business and Economics. GSBE Research Memoranda, No. 019 https://doi.org/10.26481/umagsb.2015019