THE IMPACT OF THE SOVEREIGN DEBT ON FISCAL MULTIPLIER

Article Sidebar

pdf (Español (España))
Published: Jan 30, 2026
DOI: https://doi.org/10.22201/fe.01851667p.2026.335.90931

Main Article Content

Leonardo Tariffi
Universitat Pompeu Fabra / Universitat de Barcelona
https://orcid.org/0000-0002-1241-6527

Abstract

This research introduces a new methodology to explain levels of aggregate production’s fluctuation when there are changes in government expenditure taking into account an increasing sovereign debt. A multivariable model with a threshold is used to endogenize the debt-to-gdp variable as a determinant of structural changes in the relationship between public spending and aggregate production. Using a threshold value to split the sample into two sets of observations, it is shown in the very short-term that as public debt increases, the fiscal multiplier decreases in Belgium, it has not a significant change in Italy, it increases in Spain, and it becomes negative in the United Kingdom.

Article Details

How to Cite
Tariffi, L. (2026). THE IMPACT OF THE SOVEREIGN DEBT ON FISCAL MULTIPLIER. Investigación Económica, 85(335), 57–82. https://doi.org/10.22201/fe.01851667p.2026.335.90931

Citas en Dimensions Service

Author Biography

Leonardo Tariffi, Universitat Pompeu Fabra / Universitat de Barcelona

I am an economist with a Master, DEA and PhD in Economics at the University of Barcelona. I have previous experiences of working in private companies, policy-making institutions and academia. At the end of my studies in Economics at the University of the Andes, I worked at the Department of Quantitative Support of the Central Bank of Venezuela and the Macroeconomic Analysis Unit corresponding to the cooperation between the Economic and Finance Advisor Office to the National Assembly of Venezuela and the Inter-American Development Bank. I also studied the ESOL programme at Kensington and Chelsea College and I obtained experience working at the Research Department of Economics (University of Barcelona), Mediterranean Action Plan (United Nation Enviromental Programmme) and the Center for International Finance (IESE Business School). I have teaching experience lecturing Decision Analysis (European University), Research Methods (University of the Andes), and Epistemology Research (UPEL – IMPM) for undergraduate and postgraduate students. I have published and reviewed in international journals. In my PhD dissertation “Essays on the exchange rate real determinants”, I focused on internal and external imbalances in the global economy and the relationship between current and capital accounts and misalignments in real exchange rates. I also followed a post doctoral program as a research fellow at the University of Pavia where I wrote my paper "A threshold multivariate model to explain fiscal multipliers with government debt" published at the journal of Econometric Research in Finance. My last affiliations are the CIDIS of the University of the Andes as a Researcher, the CIVREF as the Executive Director, the Department of Economics and Business of the Pompeu Fabra University as an Adjunct Professor, and the Department of Business of the University of Barcelona as a Substitute Professor.

Crossref
Scopus
Google Scholar
Europe PMC

References

Alesina, A., Favero, C. y Giavazzi F. (2019). Effects of Austerity: Expenditure –and Tax-based Approaches. The Journal of Economic Perspectives, 33(2), 141-162. https://doi.org/10.1257/jep.33.2.141 DOI: https://doi.org/10.1257/jep.33.2.141

Auerbach, A. y Gorodnichenko, Y. (2012). Measuring the Output Responses to Fiscal Policy. American Economic Journal: Economic Policy, 4(2), 1-27. https://doi.org/10.1257/pol.4.2.1 DOI: https://doi.org/10.1257/pol.4.2.1

Bai, J. y Perron, P. (1998). Estimating and Testing Linear Models with Multiple Structural Changes. Econometrica, 66(1), 47-78. DOI: https://doi.org/10.2307/2998540

Bai, J. y Perron, P. (2003). Computation and analysis of multiple structural change models. Journal of Applied Econometrics, 18(1), 1-22. https://doi.org/10.1002/jae.659 DOI: https://doi.org/10.1002/jae.659

Blanchard, O. (2019). Public Debt and Low Interest Rates. The American Economic Review, 109(4), 1197-1229. https://doi.org/10.1257/aer.109.4.1197 DOI: https://doi.org/10.1257/aer.109.4.1197

Blanchard, O. y Leigh, D. (2012). Are We Underestimating Short-Term Fiscal Multipliers? In: World Economic Outlook (pp. 41-43). International Monetary Fund.

Blanchard, O. y Perotti, R. (2002). An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output. The Quarterly Journal of Economics, 117(4), 1329-1368. https://doi.org/10.1162/003355302320935043 DOI: https://doi.org/10.1162/003355302320935043

Campos, J., Ericsson, N. y Hendry, D. (2005). General-to-specific Modelling: An Overview and Selected Bibliography [International Finance Discussion Papers no. 838]. Board of Governors of the Federal Reserve System (U.S.).

Christiano, L., Eichenbaum, M. y Rebelo, S. (2011). When Is the Government Spending Multiplier Large? Journal of Political Economy, 119(1), 78-121. DOI: https://doi.org/10.1086/659312

Corsetti, G., Meier, A. y Müller, G.J. (2012). Fiscal stimulus with spending reversals. The Review of Economics and Statistics, 94(4), 878-895. https://doi.org/10.1162/REST_a_00233 DOI: https://doi.org/10.1162/REST_a_00233

Denes, M., Eggertsson, G. y Gilbukh, S. (2012). Deficits, Public Debt Dynamics and Tax and Spending Multipliers. The Economic Journal, pp. 133-163, https://doi.org/10.1111/ecoj.12014 DOI: https://doi.org/10.1111/ecoj.12014

Diamond, P.A. (1965). National Debt in a Neoclassical Growth Model. American Economic Review, 55(5), 1126-1150.

Dickey, D. y Fuller, W. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366), 427-431. https://doi.org/10.1080/01621459.1979.10482531 DOI: https://doi.org/10.1080/01621459.1979.10482531

Dickey, D. y Fuller, W. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057-1072. https://doi.org/10.2307/1912517 DOI: https://doi.org/10.2307/1912517

Dupor, B., Karabarbounis, M., Kudlyak, M. y Saif Mehkari, M. (2023). Regional Consumption Responses and the Aggregate Fiscal Multiplier. The Review of Economic Studies, 90(6), 2982-3021. https://doi.org/10.1093/restud/rdad007 DOI: https://doi.org/10.1093/restud/rdad007

Favero, C. y Giavazzi, F. (2007). Debt and the Effects of Fiscal Policy [NBER Working Papers no. 12822]. National Bureau of Economic Research. https://doi.org/10.3386/w12822 DOI: https://doi.org/10.3386/w12822

Galí, J. y Monacelli T. (2008). Optimal Monetary and Fiscal Policy in a Currency Union. Journal of International Economics, 76, 116-132. https://doi.org/10.1016/j.jinteco.2008.02.007 DOI: https://doi.org/10.1016/j.jinteco.2008.02.007

Guajardo, J., Leigh, D. y Pescatori, A. (2014). Expansionary Austerity? International Evidence. Journal of the European Economic Association, 12(4), 949-968. https://doi.org/10.1111/jeea.12083 DOI: https://doi.org/10.1111/jeea.12083

Hendry, D.F. (2024). A Brief History of General-to-specific Modelling. Oxford Bulletin of Economics and Statistics, 86(1), 0305-9049. https://doi.org/10.1111/obes.12578 DOI: https://doi.org/10.1111/obes.12578

Hernández de Cos, P. y Moral-Benito E. (2011). Endogenous Fiscal Consolidations [Documentos de Trabajo no. 1102]. Banco de España. DOI: https://doi.org/10.2139/ssrn.1792507

Ilzetzki, E., Mendoza, E.G. y Végh, C.A. (2011). How Big (Small?) are Fiscal Multipliers? [IMF Working Paper no. WP/11/52]. International Monetary Fund. DOI: https://doi.org/10.3386/w16479

Jordà, O. (2005). Estimation and Inference of Impulse Responses by Local Projections. American Economic Review, 95(1), 161-82. https://doi.org/10.1257/0002828053828518 DOI: https://doi.org/10.1257/0002828053828518

Jordà, Ò. y Taylor A.M. (2015). The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy. Economic Journal, 126(590), 219-255. https://doi.org/10.1111/ecoj.12332 DOI: https://doi.org/10.1111/ecoj.12332

Kaplan, G., Moll, B. y Violante, G.L. (2018). Monetary Policy According to HANK. American Economic Review, 108(3), 697-743. https://doi.org/10.1257/aer.20160042 DOI: https://doi.org/10.1257/aer.20160042

Kim, S. y Roubini, N. (2008). Twin Deficit or Twin Divergence? Fiscal Policy, Current Account, and Real Exchange Rate in the U.S. Journal of International Economics, 74, 362-383. DOI: https://doi.org/10.1016/j.jinteco.2007.05.012

Kirchner, M., Cimadomo, J. y Hauptmeier, S. (2010). Transmission of Government Spending Shock in the Euro Area: Time Variation and Driving Forces [ECB Working Paper Series no. 1219]. European Central Bank. hdl.handle.net/10419/153653 DOI: https://doi.org/10.2139/ssrn.1626267

McKay, A., Nakamura, E. y Steinsson, J. (2016). The Power of Forward Guidance Revisited. American Economic Review, 106(10), 3133-3158. https://doi.org/10.1257/aer.20150063 DOI: https://doi.org/10.1257/aer.20150063

Metelli, L. y Pallara, K. (2020). Fiscal Space and the Size of Fiscal Multiplier [Working Paper no. 1293]. Banca d’Italia. https://doi.org/10.2139/ssrn.3710114 DOI: https://doi.org/10.2139/ssrn.3710114

Nakamura, E. y Steinsson, J. (2014). Fiscal Stimulus in a Monetary Union: Evidence from US Regions. American Economic Review, 104(3), 75-792. https://doi.org/10.1257/aer.104.3.753 DOI: https://doi.org/10.1257/aer.104.3.753

Nickel, C. y Vansteenkiste, I. (2008). Fiscal Policies, the Current Account and Ricardian Equivalence [ECB Working Paper Series no. 935]. European Central Bank. https://doi.org/10.2139/ssrn.1243262 DOI: https://doi.org/10.2139/ssrn.1243262

Perotti, R. (1999). Fiscal Policy in Good Times and Bad. The Quarterly Journal of Economics, 114(4), 1399-1436. https://doi.org/10.1162/003355399556304 DOI: https://doi.org/10.1162/003355399556304

Ramey, V.A. y Zubairy, S. (2018). Government Spending Multipliers in Good Times and in Bad. Journal of Political Economy, 126(2), 850-901. DOI: https://doi.org/10.1086/696277

Reinhart, C.M. y Rogoff, K.S. (2010). Growth in a Time of Debt [NBER Working Paper no. 15639]. National Bureau of Economic Research. https://doi.org/10.3386/w15639 DOI: https://doi.org/10.3386/w15639

Sutherland, A. (1997). Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy? Journal of Public Economics, 65, 147-162. https://doi.org/10.1016/S0047-2727(97)00027-3 DOI: https://doi.org/10.1016/S0047-2727(97)00027-3

Tariffi, L.A. (2019). A Threshold Multivariate Model to Explain Fiscal Multipliers with Government Debt. Econometric Research in Finance, 4, 27-40. doi.org/10.33119/ERFIN.2019.4.1.2 DOI: https://doi.org/10.33119/ERFIN.2019.4.1.2

Thirlwall, A.P. (2011). The Balance of Payments Constraint as an Explanation of International Growth Rate Differences. PSL Quarterly Review, 64(259), 429-438 (Artículo original publicado en BNL Quarterly Review, 32(128), 45-53, 1979).

Tsay, R.S. (1989). Testing and Modelling Threshold Autoregressive Processes. Journal of the American Statistical Association, 84(405), 231-240. https://doi.org/10.2307/2289868 DOI: https://doi.org/10.1080/01621459.1989.10478760

Tsay, R.S. (1998). Testing and Modelling Multivariate Threshold Models. Journal of the American Statistical Association, 93(443), 1188-1202. https://doi.org/10.1080/01621459.1998.10473779 DOI: https://doi.org/10.1080/01621459.1998.10473779

Woodford, M. (2010). Simple Analytics of the Government Expenditure Multiplier [NBER Working Paper no. 15714]. National Bureau of Economic Research. https://doi.org/10.3386/w15714 DOI: https://doi.org/10.3386/w15714

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Authors who publish in this journal agree to the following conditions:

a) The authors retain the copy rights (copyright) and give the journal the right of first publication, with the work also under the Creative Commons Attribution License that allows third parties to use what is published as long as they refer to the author or authors of the article. work and its publication in this journal.

b) The authors are free to make other contractual agreements for the non-exclusive distribution of the article they publish in this journal (such as including it in an institutional collection or publishing it in a book), provided that they clearly indicate the original publication of the work in this journal.