Estimates of fiscal multipliers using MEDSEA

Abstract

This paper documents the scal extension to MEDSEA, the Central Bank of Malta DSGE model. The model contains a relatively rich scal sector. Decisions made by the agents in the model are a ected by distortionary taxes on labour income, capital income and consumption. On the expenditure side, the model distinguishes between public sector expenditure on nal goods and services, public investment, public employment as well as transfers to households. The model is used to assess the size of scal multipliers in a very open and small open economy such as Malta. I consider both transitory and permanent shocks and also allow for changes in the instrument used to finance the change in fiscal policy.