Public investment fiscal multipliers: An empirical assessment for European countries

Download working paper

UCL Institute for Innovation and Public Purpose (IIPP) Working Paper Series: IIPP WP 2019-08

Authors

• Matteo Deleidi | Research Fellow, Roma Tre University; Honorary Research Fellow, UCL Institute for Innovation and Public Purpose
• Francesca Iafrate | Research Fellow, Roma Tre University
• Enrico Sergio Levrero | Associate Professor, Roma Tre University

Reference

Deleidi, M., Iafrate, F. and Levrero, E. S. (2019). Public investment fiscal multipliers: An empirical assessment for European countries. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2019-08). Available at: https://www.ucl.ac.uk/bartlett/publicpurpose/wp2019-08

Abstract

This paper aims to estimate fiscal multipliers in 11 Eurozone countries. To do this, we make use of yearly data provided by the OECD for the 1970-2016 period. By using the local projections approach on a panel dataset and considering different model specifications, we estimate the magnitude assumed by fiscal multipliers in order to assess whether an increase in government investment generates a ‘Keynesian effect’ on the level of the GDP. Our findings suggest that fiscal multipliers tend to be larger than one and an increase in public investment produces a permanent and persistent effect on the level of output. Additional model specifications suggest that government investment fiscal multipliers are lower when the post-crisis period is excluded by our sample and are larger in Southern countries than Northern ones.