The Journal of Economic Asymmetries 12 (2015) 22–33 Contents lists available at ScienceDirect The Journal of Economic Asymmetries www.elsevier.com/locate/jeca Fiscal shocks and asymmetric effects: A comparative analysis Ioannis Pragidis 1 , Periklis Gogas ∗ , Vasilios Plakandaras 2 , Theophilos Papadimitriou 2 Department of Economics, Democritus University of Thrace, Komotini, P.C. 69100, Greece a r t i c l e i n f o Article history: Received 22 September 2014 Received in revised form 23 October 2014 Accepted 23 October 2014 Available online 30 December 2014 Keywords: Fiscal policy Asymmetric effects VAR Support vector machines 1. Introduction In this paper we empirically test the existence of non-linearities that may be associated with the conduct of fiscal policy. In doing so, we try to detect two types of fiscal policy asymmetries: first, whether equal in magnitude contractionary or expansionary fiscal shocks have the same multiplier impact on real output, and second whether theoretically equal – in terms of their impact on the government budget fiscal policy tools, such as a tax cut or an increase in government spending, have the same impact on output. Fiscal and monetary policies are the cornerstone of policymaking. However, until 2000 the main bulk of empirical re- search was dedicated solely to the effects of monetary policy. In the aftermath of the global crisis of 2008 there is a growing debate of whether governments should run fiscal stimulus packages in order to restore previous growth rates or run an aus- terity program to reduce deficits as a percent of GDP. Recently for example, highly indebted Eurozone countries (Greece, Ireland, Portugal and Spain) are required to implement fiscal austerity measures in order to balance their balance sheets. This leads to a significant increase in volatility of the bond yields of several European countries (Gaina & Philippas, 2013). In this context it is interesting to see whether and how Keynesian principles may apply. According to Bertola and Drazen (1993), governments should choose fiscal stimulus packages if they accept a positive and above unity fiscal multiplier regardless of the debt to GDP ratio. Keynesian economics assert that government spending and tax cuts, directly affect disposable private income and through the channel of active demand the economy tracks itself back to a growth path. The fiscal multiplier under Keynesian beliefs is well above unity as there is no crowding out effect and the wealth effect is not so strong. Due to various rigidities in the markets (labour, goods and services), this fiscal stimulus * Corresponding author. Tel.: +30 6947001079. E-mail addresses: gpragkid@ierd.duth.gr (I. Pragidis), pgkogkas@ierd.duth.gr (P. Gogas), vplakand@ierd.duth.gr (V. Plakandaras), papadi24@gmail.com (T. Papadimitriou). 1 Tel.: +30 6946905951. 2 Tel.: +30 6947001079. http://dx.doi.org/10.1016/j.jeca.2014.10.003 1703-4949/ 2014 Elsevier B.V. All rights reserved.