Finnish fiscal multipliers with a structural VAR model

The financial crisis has given birth to a debate on the effects of fiscal policy on economic activity, i.e. on fiscal multipliers. While there are now plenty of papers assessing fiscal multipliers for the U.S., we still have little knowledge about multipliers for economies such as Finland that have many distinguishable features. This paper estimates fiscal multipliers for the Finnish economy with a structural VAR model using Finnish data. The methodology of the model used is based on a much cited study by Blanchard and Perotti (2002). The study finds expenditure multipliers greater than 1 in the short run and tax multipliers half of that value. Nevertheless, tax multipliers are more persistent in time. With public investments also included in the public expenditure variable, the expenditure multiplier becomes more persistent.

Keywords: Fiscal policy, fiscal multipliers, VAR models
Published: 24.9.2014
ISBN: 978-952-209-130-7 (pdf)
ISSN: 1795-1801 (pdf)
Publication (PDF)