Production Networks And International Fiscal Spillovers

Abstract This paper analyses the impact of fiscal spending shocks in a dynamic, multi-country model with international production networks. The response real gross domestic product to shock can be decomposed into direct effect, income effect and price effect. depends only on input-output linkages, while is zero aggregate. We apply this decomposition Eurozone, find that spillovers from Germany core Eurozone countries large, within range empirical estimates. Without networks, would significantly smaller. In an application, using decomposition, we results strongly consistent model.