Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237946 
Year of Publication: 
2020
Series/Report no.: 
ESRI Working Paper No. 675
Publisher: 
The Economic and Social Research Institute (ESRI), Dublin
Abstract: 
This paper reassesses the predictions of the standard Barro-type endogenous growth models drawing on recent developments in the panel time series literature. In particular, we employ the Common Correlated Effects (CCE) estimator developed in Pesaran (2006) and estimate the effects of fiscal policy for a panel of EU countries using annual data from 1995 to 2017. Our results provide strong support for the predictions of the standard endogenous growth model. More importantly, the CCE estimation generates significantly larger effects of fiscal policy on growth with respect to the other widely used estimation methods. Our comparative analysis indicates that estimation methods which ignore the heterogeneous impact of unobserved common factors across countries could lead to a significant underestimation of the effects of fiscal policy on growth.
Subjects: 
long-run growth
fiscal policy
unobserved common factors
cross-sectional dependence
JEL: 
H50
O40
Document Type: 
Working Paper

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