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Time-varying effects of fiscal policy in Spain: a Markov-switching approach

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  • Alejandro Ricci-Risquete
  • Julián Ramajo
  • Francisco De Castro

Abstract

How have the effects of Spanish fiscal policy varied over time? Given this starting point, in this article we analyse the regime dependence of fiscal policy in Spain by estimating a vector autoregressive model within a Markov-switching framework. Our results indicate that Spain’s membership of the Economic and Monetary Union (EMU) is the most likely source of time variation in the fiscal outcomes. Accordingly, increases in the primary deficit-to-GDP ratio do not succeed in stimulating economic activity in the first regime; rather, unexpected upsurges in the primary deficit harm economic activity (non-Keynesian effect) in the second regime, which prevails since the ratification of the Maastricht Treaty.

Suggested Citation

  • Alejandro Ricci-Risquete & Julián Ramajo & Francisco De Castro, 2016. "Time-varying effects of fiscal policy in Spain: a Markov-switching approach," Applied Economics Letters, Taylor & Francis Journals, vol. 23(8), pages 597-600, May.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:8:p:597-600
    DOI: 10.1080/13504851.2015.1090544
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    Cited by:

    1. Sosvilla-Rivero, Simón & Rubio-Guerrero, Juan J., 2022. "The economic effects of fiscal policy: Further evidence for Spain," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 305-313.
    2. Gilles Dufrénot & Aurélia Jambois & Laurine Jambois & Guillaume Khayat, 2016. "Regime-Dependent Fiscal Multipliers in the United States," Open Economies Review, Springer, vol. 27(5), pages 923-944, November.
    3. Mile Bosnjak, 2017. "Structural Change In Croatian Real Gdp Growth Rates," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 26(1), pages 205-218, june.

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