The Misalignment of Fiscal Multipliers in Italian Regions

By accounting for the structural heterogeneity between northern and southern economies, this paper estimates fiscal multipliers resulting from shocks to current public expenditure, total public revenues and public investment in Italian regions. The estimation is carried out by estimating a panel Bayesian VAR, where the structural shocks are identified by means of sign restrictionssuggested by economic theory. The results shed new light on the magnitude of regional fiscal shocks and their propagation. Moreover, a misalignment of fiscal multipliers is revealed, which is possibly policy relevant for both local and central authorities