Fiscal multipliers and factors of growth in Poland and the Czech Republic in 2009
AbstractFirst, the concept of public expenditure multiplier is redefined to allow for import intensity of exports, and its value is estimated for Poland and the Czech Republic in 2008–2009. Next, on the basis of effective demand model of economic dynamics, there follows a comparative analysis of GDP dynamics in the two countries in 2008-09 and of the factors that in 2009 made the rate of GDP growth positive in Poland and negative in Czech Republic. In 2009 both countries experienced the rate of exchange depreciation which, however, was significantly greater in Poland, as was the rise of rate of private savings, which negatively affects the GDP growth rate. On the other hand, fiscal expansion was slightly greater in Czech Republic than in Poland. What factors then helped to avoid the GDP growth to decline in 2009 in Poland but not in the Czech Republic? The key difference in the GDP generation was that in the latter country net exports were too small to offset the rate of growth of private savings, while in Poland improvement in the trade balance, heavily negative in earlier years, together with strong fiscal expansion outbalanced the effect of much greater than in the Czech Republic rise in the rate of private savings. The derived results are strongly sensitive to variations in such parameters of our model as sectoral import intensities and private propensity to save, which may well change with changes in growth of GDP and its components. This does not undermine theoretical foundations of our analysis, yet it limits validity of any conclusions with respect to hypothetical future impact of fiscal expansion or fiscal contraction. Nevertheless, it appears that maintaining a positive rate of GDP growth may require that the rate of private savings no longer continues to rise (i.e. that the average private propensity to consume no longer falls) at least until the dynamics of private investment and/or exports do not recover.
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Bibliographic InfoPaper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 117.
Date of creation: 2012
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macroeconomics; effective demand principle; multiplier; stabilization policy;
Find related papers by JEL classification:
- E0 - Macroeconomics and Monetary Economics - - General
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-MAC-2012-07-23 (Macroeconomics)
- NEP-TRA-2012-07-23 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas I. Palley, 2009. "Imports and the income-expenditure model: implications for fiscal policy and recession fighting," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 32(2), pages 311-322, December.
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