No. 152. ASYMMETRIC EFFECTS OF FISCAL POLICY ON OUTPUT OF THE GREEK ECONOMY: DOES THE BUSINESS CYCLE MATTER?
S. Papaioannou. 2018.
We analyze if the influence of public expenditure on output can be affected by the state of the economy. Markov Switching regression results are reported on quarterly data for Greece and suggest that the effects of public spending on output are quite asymmetric over the business cycle. The highest influence is observed during recessions. On the contrary, in periods of growth, this impact is negative. Given that endogeneity is a real concern when considering the effects of fiscal policy, we obtain instrumental variable estimates that are as free as possible of endogeneity. Even, in this case we verify that the highest influence of public spending is observed during contractions. Nevertheless, in periods of growth, its impact is less negative as compared to the influence obtained by our initial estimates.