The Reaction of Fiscal Policy to the Crisis in Italy and Germany: Are they really polar Cases in the European Context?
DOI:
https://doi.org/10.55444/2451.7321.2010.v48.n2.4108Keywords:
discretionary fiscal policy , automatic stabilizers , Germany, ItalyAbstract
The deep recession which hit the world economy towards the end of 2008 inducedmassive, internationally-coordinated policy responses, both monetaryand fi scal. In this paper we examine public fi nance developments in Germanyand Italy in 2009. We fi nd that the larger stimulus measures adopted inGermany mostly compensated a more favourable underlying trend; overall,the cyclically-adjusted primary balances worsened by a similar extent in thetwo countries. We further estimate the automatic stabilisers to have had animpact on the defi cit of similar magnitude in Germany and Italy. We thenassess, on the basis of counterfactual simulations, to which extent discretionarymeasures and automatic stabilizers were able to mitigate the downturnin the two countries. Our results show that the public sector contrastedthe fall in real GDP in 2009 by more than 2 percentage points in Germany andby 1 per cent in Italy. The difference in the stabilizing effect of the two public sectors refl ects not only the different size of the stimulus measures, but also thehigher fi scal multipliers associated with Germany.
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