Government spending shocks have a small effect on GDP and lead to crowding-out effects on private sector investment, a paper from the European Central Bank posits.

The research also finds that fiscal expansion:

does not impact significantly on private consumption;

has a varied impact on housing prices;

generates a quick fall in stock prices;

and leads to the depreciation of the real effective exchange rate.

The research stresses that it is crucial to consider the government debt dynamics in the