Growth effects of fiscal policy: an application of the unobserved common factor model
Ilias Kostarakos,
Petros Varthalitis
Abstract:We study the long-run effects of fiscal policy on growth in a panel of twenty-eight European countries using annual data over the last 25 years. We draw on recent developments from the panel time series econometrics literature and introduce the unobserved common factor framework for the estimation of the growth effects of fiscal policy. This approach accounts for the country-specific impact of global macroeconomic shocks and other sources of unobserved time-varying heterogeneity. Our results indicate that fisc… Show more
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