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.
|Place of Publication||Maastricht|
|Publisher||Maastricht University, Graduate School of Business and Economics|
|Number of pages||43|
|Publication status||Published - 1 Jan 2015|
|Series||GSBE Research Memoranda|
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