This paper, titled "Estimating the Effects of Fiscal Policy in OECD Countries," by Roberto Perotti, examines the impact of fiscal policy on GDP, prices, and interest rates in five OECD countries: the US, West Germany, the UK, Canada, and Australia. The study uses a structural Vector Autoregression (VAR) approach to analyze the effects of fiscal policy shocks. Key findings include: 1. **Weakening Effects**: The effects of fiscal policy on GDP and its components have weakened significantly over the past 20 years. 2. **Small Multipliers**: Government spending multipliers tend to be negative but small, with tax multipliers even smaller. 3. **Price Elasticity**: The price elasticity of government spending is crucial for understanding its effects on prices. When plausible values are imposed, previously estimated negative effects often become positive, though usually small and not always significant. 4. **Interest Rate Effects**: Government spending shocks have significant effects on the real short-term interest rate, but the signs are uncertain. 5. **Tax Shocks**: Net tax shocks have very small effects on prices, typically negative or zero. 6. **US Outlier**: The US is an outlier in many dimensions, with responses to fiscal shocks often not representative of the average OECD country. The paper also discusses various methodologies for identifying fiscal policy shocks, including narrative approaches, sign restrictions, Choleski ordering, and a structural VAR approach. It provides a detailed methodology for constructing output and price elasticities and presents the data sources and specifications used in the analysis. The results highlight the importance of considering the timing and sequencing of fiscal policy shocks and the limitations of existing empirical evidence on fiscal policy effects.This paper, titled "Estimating the Effects of Fiscal Policy in OECD Countries," by Roberto Perotti, examines the impact of fiscal policy on GDP, prices, and interest rates in five OECD countries: the US, West Germany, the UK, Canada, and Australia. The study uses a structural Vector Autoregression (VAR) approach to analyze the effects of fiscal policy shocks. Key findings include: 1. **Weakening Effects**: The effects of fiscal policy on GDP and its components have weakened significantly over the past 20 years. 2. **Small Multipliers**: Government spending multipliers tend to be negative but small, with tax multipliers even smaller. 3. **Price Elasticity**: The price elasticity of government spending is crucial for understanding its effects on prices. When plausible values are imposed, previously estimated negative effects often become positive, though usually small and not always significant. 4. **Interest Rate Effects**: Government spending shocks have significant effects on the real short-term interest rate, but the signs are uncertain. 5. **Tax Shocks**: Net tax shocks have very small effects on prices, typically negative or zero. 6. **US Outlier**: The US is an outlier in many dimensions, with responses to fiscal shocks often not representative of the average OECD country. The paper also discusses various methodologies for identifying fiscal policy shocks, including narrative approaches, sign restrictions, Choleski ordering, and a structural VAR approach. It provides a detailed methodology for constructing output and price elasticities and presents the data sources and specifications used in the analysis. The results highlight the importance of considering the timing and sequencing of fiscal policy shocks and the limitations of existing empirical evidence on fiscal policy effects.