Fiscal Multiplier Determinants in the CESEE Region
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Published:
Jul 29, 2019
Keywords:
fiscal multipliers, CESEE region, panel VAR
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Abstract
In this paper we use the panel VAR model with exogenous variables to analyse the effects of various structural characteristics of the economies on the effectiveness of government consumption in the Central Eastern and Southeastern European region (CESEE). More precisely, we analyse the effects of government consumption on economic growth in this region, controlling for the effects of the size of the economy, level of public debt, level of tax burden, openness of the economy, rigidity of the labour market, monetary regime and the phase of the business cycle. Our results indicate that these characteristics have a significant impact on the effectiveness of fiscal policy (in terms of the size of the fiscal multiplier). Also, these effects are in line with the theoretical assumptions as the recessionary phase of the cycle, size of the economy, rigidity of the labour market and the fixed exchange rate regime increase the average size of fiscal multipliers while tax burden, indebtedness and openness of the economies reduce the size of the fiscal multiplier, when compared to the base model.
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Deskar-Śkrbić, M., Śimović, H., & Buljan, A. (2019). Fiscal Multiplier Determinants in the CESEE Region. Journal of Management and Financial Sciences, (29), 11–26. https://doi.org/10.33119/JMFS.2017.29.1
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References
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21. Karagyozova-Markova, K., Deyanov, G. & Iliev, V., Fiscal Policy and Economic Growth in Bulgaria, Bulgarian National Bank Discussion Paper 2013, DP/90/2013.
22. Klyuev, V.&Snudden, S., Effects of Fiscal Consolidation in the Czech Republic, IMF Working Papers 2011, WP/11/65.
23. Kraay, A., Government consumption multipliers in developing countries: evidence from lending by official creditors, World Bank Policy Research Working Paper 2013, No. 6099.
24. Muir, D. & Weber, A., Fiscal Multipliers in Bulgaria: Low But Still Relevant, IMF Working Paper 2013, WP/13/49.
25. Organisation for Economic Co-operation and Development, The Effectiveness and Scope of Fiscal Stimulus, OECD Economic Outlook Interim Report (Paris) 2009. Available at: http://www.oecd.org/eco/outlook/42421337.pdf
26. Silva, R., Carvalho, V.M.& Ribeiro, A.P., How Large are Fiscal Multipliers? A Panel Data VAR Approach for the Euro Area, FEP Working Papers 2013, No. 500 August 2013.
27. Stoian, A., The Macroeconomic Effects of Fiscal Policy in Romania, Academy of Economic Studies Doctoral School of Finance and Banking, June 2012 Presentation. Available at: http://finsys.rau.ro/docs/Stoian%20Anca.pdf
28. Simović, H. & Deskar-Skrbić, M., Dynamic Effects of Fiscal Policy and Fiscal Multipliers in Croatia, Proceedings of Rijeka Faculty of Economics, “Journal of Economics and Business” 2013, 31(1), pp. 55-78.
29. Zeman, J., Fiscal multipliers in Slovak economy, DSGE simulation, NBS Working Paper 2016, 2/2016.
2. Baxa, J., What the Data Say about the Effects of Fiscal Policy in the Czech Republic? [in:] Houda, M., Friebelova, J. (Eds.) Mathematical Methods in Economics 2010, University of South Bohemia, Ceske Budejovice 2010, pp. 24-29.
3. Babecky, J., Franta, M. & Rysanek, J., Effects of Fiscal Policy in the DSGE-VAR Frame- work: The Case of the Czech Republic, “Economic Research Bulletin, Financial Cycles and Macroprudential and Monetary Policies”, Czech National Bank 2016, 14(2).
4. Batini, N., Eyraud, L. & Weber, A., A Simple Method to Compute Fiscal Multipliers, IMF Working Paper 2014., 14/93, Washington: International Monetary Fund.
5. Boiciuc, I., The effects of fiscalpolicy shocks in Romania. A SVAR Approach, “Procedia Economics and Finance” 2015, 32, pp. 1131-1139.
6. Cole, H. & Ohanian, L., New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis, “Journal of Political Economy” 2004, 112 (August), pp. 779-816.
7. Contreras Banco, J. & Battelle H., Fiscal Multipliers in a Panel of Countries, Banco de Mexico Working Papers 2014, No. 2014-15.
8. Corsetti, G., Meier, A.& Muller, G.J., What Determines Government Consumption Multipliers?, IMF Working Paper, Monetary and Capital Markets Department 2012, WP/12/150.
9. Crespo Cuaresma, J.; Eller, M. &Mehrotra, A., The Economic Transmission of Fiscal Policy Shocks from Western to Eastern Europe, “Focus on European Economic Integration” 2011, Issue 2, pp. 44-68.
10. Deskar-Skrbić, M., Simović, H., Ćorić, T., The Effects of Fiscal Policy in a Small Open Transition Economy: The Case of Croatia, “Acta Oeconomica” 2014, 64, S1; pp. 133-152
11. Deskar-Skrbić, M. & Simović, H., The size and determinants of fiscal multipliers in Western Balkans: comparing Croatia, Slovenia and Serbia. EFZG Working Paper Series 2015, pp. 15-10.
12. Filipovski, V., Fiti, T. &Trenovski, B., Efficiency of the fiscal policy and the fiscal multipliers - the case of the Republic of Macedonia, “Ikonomicheski Izsledvania” (Economic Studies journal) 2016, Issue 1, pp. 1-21.
13. Franta, M., Effects of Fiscal Policy in the Czech Republic: Evidence Based on Vari- ous Identification Approaches in a VAR Framework, Working Paper Series, Czech National bank 2012, 13/12.
14. Gorodnichenko, Y., E.G. Mendoza, E. & Tesar, L., The Finnish Great Depression: From Russia with Love, "American Economic Review” 2012, 102(4), pp. 1619-1643.
15. Grdović Gnip, A., The power of fiscal multiplier in Croatia, “Financial Theory and Practice” 2014, 38(2), pp. 173-219.
16. Grdović Gnip, A., Empirical assessment of stabilization effects of fiscal policy in Croatia, “Romanian Journal of Economic Forecasting” 2015, 18(1), pp. 47-69.
17. Hinić, B., Miletić, M. & Tomin, A., Efficiency of the fiscal and monetary stimuli: the case of Serbia, Proceedings of the 2nd Research Conference Policy Nexus and the Global Environment: A New Consensus Emerging from the Crisis?, National Bank of the Republic of Macedonia, Skopje 2013, 26 April, 2013.
18. Hory, M.-P., Fiscal multipliers in EmergingMarket Economies: Can we learn something from AdvancedEconomies’ experiences,”International Economics” 2016, 146(2016), pp. 59-84.http://data.leo-univ-orleans.fr/media/seminars/228/mph-05-11-2014.pdf
19. Ilzetzki, E., Mendoza, E. & Vegh, C., How big (small?) are fiscal multipliers?, “Journal of Monetary Economics” 2013, 60(2), pp. 239-254.
20. Jemec, N., Kastelec, A.S. & Dalekorda, A., How Do Fiscal Shocks Affect the Macro- economic Dynamics in the Slovenian Economy?, Bank of Slovenia Working Paper 2013, No. 1/2013.
21. Karagyozova-Markova, K., Deyanov, G. & Iliev, V., Fiscal Policy and Economic Growth in Bulgaria, Bulgarian National Bank Discussion Paper 2013, DP/90/2013.
22. Klyuev, V.&Snudden, S., Effects of Fiscal Consolidation in the Czech Republic, IMF Working Papers 2011, WP/11/65.
23. Kraay, A., Government consumption multipliers in developing countries: evidence from lending by official creditors, World Bank Policy Research Working Paper 2013, No. 6099.
24. Muir, D. & Weber, A., Fiscal Multipliers in Bulgaria: Low But Still Relevant, IMF Working Paper 2013, WP/13/49.
25. Organisation for Economic Co-operation and Development, The Effectiveness and Scope of Fiscal Stimulus, OECD Economic Outlook Interim Report (Paris) 2009. Available at: http://www.oecd.org/eco/outlook/42421337.pdf
26. Silva, R., Carvalho, V.M.& Ribeiro, A.P., How Large are Fiscal Multipliers? A Panel Data VAR Approach for the Euro Area, FEP Working Papers 2013, No. 500 August 2013.
27. Stoian, A., The Macroeconomic Effects of Fiscal Policy in Romania, Academy of Economic Studies Doctoral School of Finance and Banking, June 2012 Presentation. Available at: http://finsys.rau.ro/docs/Stoian%20Anca.pdf
28. Simović, H. & Deskar-Skrbić, M., Dynamic Effects of Fiscal Policy and Fiscal Multipliers in Croatia, Proceedings of Rijeka Faculty of Economics, “Journal of Economics and Business” 2013, 31(1), pp. 55-78.
29. Zeman, J., Fiscal multipliers in Slovak economy, DSGE simulation, NBS Working Paper 2016, 2/2016.