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BUSINESS UNCERTAINTY AND THE EFFECTIVENESS OF FISCAL POLICY IN GERMANY

Published online by Cambridge University Press:  20 July 2017

Tim Oliver Berg
Tim Oliver Berg*
Affiliation:
Ifo Institute
*
Address correspondence to: Tim Oliver Berg, Ifo Institute, Center for Business Cycle Analyses and Surveys, Poschingerstr. 5, 81679 Munich, Germany; e-mail: Tim-OliverBerg@gmx.de.
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Abstract

There are suggestions that increased uncertainty makes fiscal policy temporarily less effective. In this paper, I examine the relationship between business uncertainty and fiscal policy effectiveness in Germany. I use measures of business uncertainty that are derived from the firm-level data of the Ifo Business Climate Survey and interact them with the parameters of a structural vector autoregression to produce state-dependent spending multipliers. The impact of increased uncertainty on the spending multiplier is generally small and often statistically not significant in the short run. By contrast, I obtain a significant positive impact on the long-run multiplier. These baseline results are supported by a variety of robustness checks and specifications.

Keywords

Business UncertaintyGovernment Spending MultiplierInteracted Vector AutoregressionGermany
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 4 , June 2019 , pp. 1442 - 1470
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

I am thankful to Christian Grimme (Ifo) for the preparation of the Ifo-BCS data and fruitful discussions. Financial support from Fritz Thyssen Foundation is gratefully acknowledged.

References

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