The misalignment of fiscal multipliers in Italian regions

This paper estimates fiscal multipliers resulting from shocks to current public expenditure, total public revenues, and public investment in Italian regions by accounting for the structural heterogeneity between Northern and Southern economies. The estimation is carried out by estimating a Bayesian panel vector autoregression, where the structural shocks are identified using sign restrictions suggested by economic theory. The results shed new light on regional fiscal shocks' magnitude and propagation. Moreover, a misalignment of fiscal multipliers is revealed, possibly policy relevant to local and central authorities.