Nontradable Goods and Fiscal Multipliers

47 Pages Posted: 22 Sep 2020

See all articles by Jesus Crespo Cuaresma

Jesus Crespo Cuaresma

Vienna University of Economics and Business

Christian Glocker

Austrian Institute of Economic Research (WIFO)

Date Written: 2020

Abstract

We assess the role that nontradable goods play as a determinant of fiscal spending multipliers, making use of a two-sector model. While fiscal multipliers increase with the share of nontradable goods, an inverted U-shaped relationship exists between multiplier size and the import share. Employing an interacted panel VAR model for EU countries, we estimate the effect of the share of nontradable goods on fiscal spending multipliers. Our empirical results provide strong evidence for the predictions of the theoretical model. They imply that the drag of fiscal consolidations is on average smaller in countries with a low share of nontradable goods.

Keywords: fiscal spending multiplier, nontradable goods, openness, DSGE model, interacted panel VAR model

JEL Classification: E62, F41, C23

Suggested Citation

Cuaresma, Jesus Crespo and Glocker, Christian, Nontradable Goods and Fiscal Multipliers (2020). CESifo Working Paper No. 8541, Available at SSRN: https://ssrn.com/abstract=3689462

Jesus Crespo Cuaresma

Vienna University of Economics and Business

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Christian Glocker (Contact Author)

Austrian Institute of Economic Research (WIFO) ( email )

Arsenal, Objekt 20
Vienna, 1030
Austria

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