A fresh look at fiscal multipliers: one size fits it all? Evidence from the Mediterranean area

Abstract

Following the adoption of important fiscal stimuli to fight the recent crisis, a large literature estimated fiscal multipliers. Focusing on an area particularly appealing, given its diversity and the diversity of the response of countries that compose it to the current crisis, namely the Mediterranean area, we unveil major disparities regarding the significance, sign and size of fiscal multipliers depending mainly on the economic characteristics, the type of multiplier, the time span and the type of fiscal stimulus. Evidence of such important heterogeneities highlights the need for better cooperation among countries, particularly regarding the design of fiscal policy. Failing to do so might divert public resources to ineffective fiscal policies in some countries, or, on the contrary, deprive other countries of potentially high benefits of appropriate fiscal policies, including a reliable tool for exiting the current crisis.