The recent macroeconomic literature dealing with fiscal policy multipliers is dominated by applications of aggregate DSGE
(Dynamic Stochastic General Equilibrium) models, whereas multi-sectoral models (econometric input-output or CGE) are absent.
This paper contributes to the debate from a multi-regional, multi-sectoral perspective. The macroeconomic input-output model
applied covers 67 countries (plus a statistical rest of world) and incorporates model blocks for private consumption, production,
the labour market and the public sector. Household consumption follows the permanent income hypothesis, but with important
liquidity constraints. This study calculates macroeconomic and sectoral impacts of fiscal policy in one peripheral EU economy
(Spain) as well as their inter-regional spillovers to the rest of Europe. Multipliers are about 1.9 for public consumption
and 1.2 for household taxes or transfers in the case of high liquidity constraints (1.6 and 0.9, respectively, for low liquidity
constraints). Partially endogenous public spending produces additional domestic effects as well as relatively large spillovers
for some highly indebted European countries.
Research group:Environment, Agriculture and Energy – Structural Change and Regional Development