openness, like Ireland and Belgium. Generally speaking one could say that spillover effects
in the model are relatively small. As would be expected, the spillovers of a demand shock in
Germany are largest in the Netherlands, Belgium and Austria, the countries for which exports
to Germany form a relatively large share of total demand. Table 10 gives the spillover effects
under an EMS regime for shocks originating in different European countries, as discussed in
the section above and shown in the country tables in the annex.
Table 9: Impact and spillover effects on GDP of German fiscal expansion
(increase in government purchases of 1% of baseline GDP in Germany, for 10 years)
|
DE |
FR |
IT |
UK |
ES |
NL |
BE |
DK |
IR |
PO |
GR |
OS |
SW |
SF |
EU1 |
|
country:_____________ |
5 | |||||||||||||
|
Interest rate targeting: | ||||||||||||||
|
Flex.rate 0.49 |
0.07 |
0.05 |
0.04 |
0.05 |
0.17 |
0.16 |
0.09 |
0.11 |
0.04 |
0.01 |
0.15 |
0.08 |
0.06 |
0.18 |
|
EMS 0.48 |
0.00 |
-0.02 |
-0.02 |
-0.03 |
0.08 |
0.09 |
0.04 |
0.03 |
-0.01 |
-0.04 |
0.14 |
0.01 |
-0.03 |
0.12 |
|
EMU 0.54 |
0.06 |
0.03 |
0.03 |
0.04 |
0.19 |
0.17 |
0.09 |
0.10 |
0.04 |
0.01 |
0.19 |
0.06 |
0.04 |
0.18 |
|
Money targeting: Flex rate 0.05 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.01 |
|
EMS 0.03 |
-0.46 |
-0.47 |
-0.43 |
-0.53 |
-0.31 |
-0.47 |
-0.33 |
-0.48 |
-0.37 |
-0.41 |
-0.24 |
-0.47 |
-0.54 |
-0.32 |
|
EMU 0.43 |
-0.06 |
-0.08 |
-0.08 |
-0.09 |
0.08 |
0.03 |
0.00 |
-0.03 |
-0.06 |
-0.09 |
0.09 |
-0.06 |
-0.09 |
0.07 |
Note: GDP percentage difference from base in first year. EMS scenario assumes German interest rates are targeted by German monetary authorities,
EMU assumes targeting by EU monetary authorities.
Table 10: Impact and spillover effects of fiscal expansion with German interest rate targeting
(increase in government purchases of 1% of baseline GDP, for 10 years)
|
DE |
FR |
IT |
UK |
ES |
NL |
BE |
DK |
IR |
PO |
GR |
OS |
SW |
SF |
EU1 5 | |
|
DE |
0.48 |
0.00 |
-0.02 |
-0.02 |
-0.03 |
0.08 |
0.09 |
0.04 |
0.03 |
-0.01 |
-0.04 |
0.14 |
0.01 |
-0.03 |
0.12 |
|
FR |
0.09 |
0.57 |
0.06 |
0.04 |
0.08 |
0.08 |
0.19 |
0.04 |
0.10 |
0.04 |
0.00 |
0.03 |
0.03 |
0.03 |
0.16 |
|
IT |
0.06 |
0.07 |
0.63 |
0.01 |
0.03 |
0.04 |
0.06 |
0.03 |
0.04 |
0.01 |
0.02 |
0.07 |
0.03 |
0.01 |
0.14 |
|
UK |
0.09 |
0.08 |
0.04 |
0.61 |
0.07 |
0.11 |
0.15 |
0.13 |
0.35 |
0.06 |
0.02 |
0.05 |
0.15 |
0.14 |
0.16 |
|
ES |
0.03 |
0.05 |
0.02 |
0.02 |
0.61 |
0.02 |
0.04 |
0.02 |
0.03 |
0.05 |
-0.01 |
0.02 |
0.03 |
0.01 |
0.07 |
|
NL |
0.04 |
0.02 |
0.00 |
0.01 |
0.01 |
0.09 |
0.06 |
0.02 |
0.03 |
0.01 |
-0.01 |
0.01 |
0.02 |
0.01 |
0.02 |
|
BE |
0.03 |
0.03 |
0.00 |
0.01 |
0.00 |
0.04 |
-0.03 |
0.01 |
0.02 |
0.00 |
-0.01 |
0.01 |
0.02 |
0.00 |
0.02 |
|
DK |
0.02 |
0.00 |
0.00 |
0.00 |
0.00 |
0.01 |
0.01 |
0.28 |
0.01 |
0.01 |
0.00 |
0.01 |
0.08 |
0.03 |
0.01 |
|
IR |
0.00 |
0.00 |
0.00 |
0.02 |
0.00 |
0.00 |
0.00 |
0.01 |
0.06 |
0.00 |
0.00 |
0.00 |
0.01 |
0.01 |
0.01 |
|
PO |
0.01 |
0.02 |
0.01 |
0.01 |
0.05 |
0.01 |
0.01 |
0.01 |
0.01 |
0.29 |
0.00 |
0.00 |
0.01 |
0.01 |
0.02 |
|
GR |
0.01 |
0.01 |
0.01 |
0.00 |
0.00 |
0.01 |
0.01 |
0.01 |
0.01 |
0.00 |
0.55 |
0.01 |
0.00 |
0.01 |
0.01 |
|
OS |
0.04 |
-0.01 |
0.00 |
-0.01 |
-0.01 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
-0.01 |
0.27 |
0.00 |
0.00 |
0.01 |
|
SW |
0.02 |
0.01 |
0.00 |
0.01 |
0.01 |
0.02 |
0.02 |
0.08 |
0.02 |
0.01 |
0.00 |
0.01 |
0.47 |
0.12 |
0.02 |
|
SF |
0.01 |
0.00 |
0.00 |
0.00 |
0.00 |
0.01 |
0.01 |
0.02 |
0.01 |
0.00 |
0.00 |
0.01 |
0.06 |
0.57 |
0.01 |
Note: The first row shows the effects of a fiscal expansion in Germany on GDP in each other country, the second row of an expansion in France, etc.
(percentage difference from base)
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In the above scenario it was assumed that the increase in public spending is paid for by a
reduction in transfers from the government to households in the long term, which is the
standard assumption in the model. Such lump sum transfers are the least distortionary in the
model. Financing by other tax increases is considerably more distortionary. To demonstrate
28