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Fiscal multipliers in recession and expansion. An analysis for the Italian regions

Author

Listed:
  • Coppola, Gianluigi
  • Destefanis, Sergio
  • Di Serio, Mario
  • Fragetta, Matteo

Abstract

This paper estimates the multipliers of two types of government spending in the 20 Italian administrative regions throughout 1960–2017, distinguishing between phases of expansion and recession. We derive regime- and region-specific multipliers through a nonlinear Bayesian heterogeneous panel threshold VAR model and provide a wide-ranging sensitivity analysis. We find that both government consumption and government investment multipliers are higher in recession than in expansion. In almost every region, government investment multipliers exceed unity in recession phases and are generally higher than their government consumption counterparts regardless of the business cycle. An exploratory analysis of the region-specific multipliers suggests that the difference between the region-specific multipliers in recession and expansion is positively associated with structural labour slack and negatively associated with trade openness. Factors related to the quality of local institutions, such as corruption and the relative size of the informal economy, also have a negative impact.

Suggested Citation

  • Coppola, Gianluigi & Destefanis, Sergio & Di Serio, Mario & Fragetta, Matteo, 2024. "Fiscal multipliers in recession and expansion. An analysis for the Italian regions," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 538-556.
    • Handle: RePEc:eee:streco:v:71:y:2024:i:c:p:538-556
    DOI: 10.1016/j.strueco.2024.08.012
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    More about this item

    Keywords

    Fiscal shocks; Regional multipliers; Asymmetric effects; Government spending categories; Bayesian heterogeneous panel threshold VAR;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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