Fiscal multipliers of public consumption expenditure: a Eurozone country analysis

In this paper we study fiscal multipliers of public consumption expenditure in Germany, France, Italy and Spain. Our aim is to provide a comparative analysis and check the size of fiscal multipliers, their stability over time and study the main determinants that could affect their dynamics. We use quarterly data for the period 2002:1-2018:4, and we estimate a FAVAR model to capture all the macroeconomic influences that could affect the real gross domestic product (Gdp) reaction to an idiosyncratic fiscal shock. We estimate different model specifications and we repeat the analysis using expanding and rolling window estimations. We find that: i) over the entire sample period multipliers are more significant in France and Germany, while in Italy and Spain they show an high degree of variability; moreover, within a year France multiplier is the biggest one, followed by Germany, Italy and Spain; ii) fiscal multipliers are not stable over time: their dynamics show big changes, confirming that multipliers are heavily affected by the model choice and by the different economic contexts; iii) we look at the determinants of this variability and we test some variables as regressors of fiscal multipliers: we find that interest rates show significant and negative effect on multipliers in each country; the state of recession of the economy show a positive effect on the size of fiscal multipliers in Italy and Spain, but not in Germany and France.