Fiscal Multipliers in Brazil Identified with Sign and Zero Restrictions

Abstract The aim of this article is to assess the effectiveness of fiscal policy in Brazil, estimating the impacts of its innovations and calculating its multipliers. A Bayesian Structural Vector Autoregression model with an innovative identification, proposed by Arias et al. (2018), which in addition to signal restrictions, zeros restrictions are also imposed in the Impulse Response Functions (IRF), so it is possible to identify shocks in which the variables of interest respond positively, negatively or null. Such methodological innovation avoids ambiguities in the identification of fiscal shocks and makes it possible to verify if their impacts are significantly affected when the government budget remains constant. The results indicate that the identification of fiscal innovations with sign and zero restrictions only identify short-run fiscal multipliers and only with the addition of zeros restrictions on GDP it is possible to get multiplier values consistent with the economic literature. Indicating a significant contribution from zero restrictions in the identification of fiscal multipliers.