Thesis title: Essays on fiscal policy and uncertainty
The interaction between fiscal policy and uncertainty is bi-directional: Governments are responsible of influencing the level of uncertainty in the economy (mainly through the so-called "fiscal policy uncertainty"); on the other hand, preliminary results suggest that fiscal policy is less effective in uncertain times, as economic agents become less sensitive to any external stimulus. The first chapter provides a comprehensive review of the related literature, discussing the theoretical background, the main results and the open questions. We highlight that the literature on the policy implications of uncertainty is at an early stage, as explained in the second chapter, which aims at understanding whether macroeconomic uncertainty has an impact on the effectiveness of fiscal policy, i.e. uncertainty influences the size of fiscal multipliers. The main empirical results is that the effect of government expenditure shock on unemployment and private investment is sizeable, leading to an increase in GDP, while the effect is nearly zero in high uncertainty. The last chapter looks at another topic related to fiscal policy and uncertainty: accurate revenue forecasts are a key element for the design and execution of sound fiscal policies; revenue windfalls and shortfalls affect the reliability of fiscal stance measures. In this respect, we examine the decline in VAT revenue during the COVID-19 recession, which has been unexpectedly lower than the drop in household consumption. According to our analysis, this result reflected the peculiar nature of the pandemic crisis and the subsequent shutdown of retail shops and services, which has considerably affected consumer habits.