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The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis

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Author Info
António Afonso
Ricardo M. Sousa

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Abstract

In the last twenty years Portugal struggled to keep public finances under control, notably in containing primary spending. We use a new quarterly dataset covering 1979:1-2007:4, and estimate a Bayesian Structural Autoregression model to analyze the macroeconomic effects of fiscal policy. The results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to important “crowding-out” effects, by impacting negatively on private consumption and investment; and have a persistent and positive effect on the price level and the average cost of financing government debt. Positive government revenue shocks tend to have a negative impact on GDP; and lead to a fall in the price level. The evidence also shows the importance of explicitly considering the government debt dynamics in the model. Finally, a VAR counter-factual exercise confirms that unexpected positive government spending shocks lead to important “crowding-out” effects..

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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2009/09.

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Date of creation: Mar 2009
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Handle: RePEc:ise:isegwp:wp92009

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Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: http://www.iseg.utl.pt/departamentos/economia/

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Related research
Keywords: B-SVAR; fiscal policy; debt dynamics; Portugal.;

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Find related papers by JEL classification:
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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References listed on IDEAS
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  3. Stéphanie Guichard & Willi Leibfritz, 2006. "The Fiscal Challenge in Portugal," OECD Economics Department Working Papers 489, OECD, Economics Department. [Downloadable!]
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  5. António Afonso & Sónia Fernandes, 2008. "Assessing Hospital Efficiency: Non-parametric Evidence for Portugal," Working Papers 2008/07, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Davide Furceri & Ricardo M. Sousa, 2009. "The Impact of Government Spending on the Private Sector: Crowding-out versus Crowding-in Effects"," NIPE Working Papers 6/2009, NIPE - Universidade do Minho. [Downloadable!]
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