Work in Progress

"The Macroeconomic Effect of Fiscal Announcements: News-Based Evidence from European Countries"

Abstract: Fiscal policy is usually announced before it is implemented, and such announcements can affect macroeconomic conditions regardless of whether the announced measures are actually implemented. This paper constructs two new quarterly news-based fiscal announcement indices—one for public spending and one for taxation—for Spain, France, Italy, and Germany over 1999–2025, using large language models validated through extensive manual checks. These indices are embedded in country-level and pooled Bayesian VARs with recursive identification, allowing for the first estimation of average macroeconomic effects of fiscal announcements in Europe. The results show that spending-related announcements anticipate subsequent increases in expenditure and generate strong and persistent expansions in GDP, consumption, investment, inflation and business expectations whereas tax-related announcements raise revenues and lead to contractionary effects and deflationary pressures. Exploiting spending announcements to mitigate fiscal foresight further reveals that GDP responds more strongly to announcements than to conditional implementation, and that the implied multiplier from unexpected spending innovations is stable and moderate. Overall, the results confirm that the press contains early and useful information for identifying fiscal communication shocks and quantifying their macroeconomic transmission.

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