How big are the Fiscal Multipliers in Italy? An analysis of the effectiveness of Italian fiscal policy using the SVAR approach

During the last fifteen years, there was a great increase in the attention of policy- makers and economists on fiscal policy; huge fiscal measures were announced and brought forth by several governments in order to counteract the negative effect of economic crises. All these measures rest on the assumption that fiscal policy is effective in enhancing GDP growth. It is, then, crucial for the policymaker to empirically validate this assertion. In this thesis we investigate whether this assumption is verified in Italy using a structural VAR model with four variables (identified using the "Blanchard-Perotti" short-run restrictions’ framework) on a 1999-2023 quarterly dataset. This analysis shows that tax cuts are more effective than spending increases in enhancing GDP growth. The tax multiplier is greater than 1, such that a tax cut increases GDP more than its cost in the state budget. The expenditure multiplier, instead, is around 1; the effect of a spending shock on GDP is almost proportional to its costs. These results are, perhaps surprisingly, coherent with existing narrative evidence, robust to changes in the identification framework and confirmed by a battery of statistical tests. The structural shocks obtained from the benchmark model are also found to be informationally sufficient, such that the "foresight effect" is not present in Italian data. This absence of foresight is due to a lack of trust in governmental announcements diffused among Italian citizens.