Università Cattolica del Sacro Cuore

N. 89 - "Nonlinearities and expenditure multipliers in the Eurozone" - Andrea Boitani, Salvatore Perdichizzi and Chiara Punzo


We analyze the non-linear effects of government spending for the Euro area in recession, by using local projection method and by testing whether the impact of the shock depends crucially on the levels of public debt or the depth of the recession. We provide three insights. First, expenditure multipliers are not strongly state-dependent but they are always above unity. Second, state dependency emerges as soon as deep recession is distinguished from ordinary downturns. Third, fiscal space matters: expenditure multipliers are larger in low fiscal space, high debt, South-EZ countries than in low-debt, North-EZ countries.

JEL codes: E32, E62
Keywords: Expenditure multipliers, State-dependent fiscal policy, Fiscal consolidation.
ISSN 2704-7407