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Cross-border effects of fiscal policy in the Eurozone

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  • Bicu, A.C.

    (General Economics 0 (Onderwijs))

  • Lieb, L.M.

    (Macro, International & Labour Economics)

Abstract

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.

Suggested Citation

  • Bicu, A.C. & Lieb, L.M., 2015. "Cross-border effects of fiscal policy in the Eurozone," Research Memorandum 019, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2015019
    DOI: 10.26481/umagsb.2015019
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    2. Isai Quispe, 2017. "Fiscal Shocks and International Production Networks: An Empirical Investigation," IHEID Working Papers 20-2017, Economics Section, The Graduate Institute of International Studies.

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