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The effects of fiscal policy on output: Does the business cycle matter?

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  • Papaioannou, Sotiris K.

Abstract

We analyze if the influence of public expenditure on output can be affected by the state of the economy. Markov Switching regression results are reported on quarterly data for Greece and suggest that the effects of government spending on output are asymmetric over the business cycle. The highest influence is observed during recessions. On the contrary, in periods of growth, this impact is negative. Given that endogeneity is a real concern for the reliability of our estimates, we perform a number of instrumental variable regressions which verify in their majority that the highest influence of public spending is observed during downturns.

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  • Papaioannou, Sotiris K., 2019. "The effects of fiscal policy on output: Does the business cycle matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 27-36.
    • Handle: RePEc:eee:quaeco:v:71:y:2019:i:c:p:27-36
    DOI: 10.1016/j.qref.2018.07.006
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    More about this item

    Keywords

    Public spending; Output; Regime switch models; Endogeneity;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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