Public investment fiscal multipliers: An empirical assessment for European countries

Abstract

This paper aims to estimate fiscal multipliers in eleven 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 engenders a permanent and persistent effect on the level of output also when fiscal foresights are considered. 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.