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How Strong Are Fiscal Multipliers in the GCC? An Empirical Investigation

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  • International Monetary Fund

Abstract

The effectiveness of fiscal policy in smoothing the impact of shocks depends critically on the size of fiscal multipliers. This is particularly relevant for the GCC countries given the need for fiscal policy to cushion the economy from large terms of trade shocks in the absence of an independent monetary policy and where fiscal multipliers could be weak dues to substantial leakages through remittances and imports. The paper provides estimates of the size of fiscal multipliers using a variety of models. The focus is on government spending since tax revenues are small. The long-run multiplier estimates vary in the 0.3-0.7 range for current expenditure and 0.6-1.1 for capital spending, depending on the particular specification and estimation method chosen. These estimates fall within the range of fiscal multiplier estimates in the literature for non-oil emerging markets.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/61.

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Length: 20
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/61

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Keywords: Fiscal policy; External shocks; Government expenditures; Nonoil sector; expenditure; capital expenditure; government expenditure; fiscal multipliers; government spending; fiscal multiplier; fiscal expenditure; total expenditure; fiscal revenue; expenditures; fiscal stimulus; fiscal spending; tax revenue; expenditure policy; fiscal stabilizers; capital expenditures; fiscal shocks; fiscal affairs department; fiscal balance; fiscal affairs; tax base; restrictive fiscal policy; tax revenue increases; tax changes; fiscal variables; fiscal policy response; tax policy; size of multipliers; budget balances; fiscal expansions; structural fiscal; fiscal policies; fiscal data; government revenue; increase in expenditures;

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References

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  1. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh Gramont, 2011. "How Big (Small?) Are Fiscal Multipliers?," IMF Working Papers 11/52, International Monetary Fund.
  2. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
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Cited by:
  1. Serhan Cevik, 2011. "Policy Coordination in Fiscal Federalism," IMF Working Papers 11/147, International Monetary Fund.
  2. Ananthakrishnan Prasad & Raphael A. Espinoza, 2012. "Monetary Policy Transmission in the GCC Countries," IMF Working Papers 12/132, International Monetary Fund.
  3. Konov, Joshua Ioji / JK, 2013. "Enhancing Markets (i.e. Economies) Transmissionability to Optimize Monetary Policies’ Effect," MPRA Paper 46950, University Library of Munich, Germany.

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