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Is Discretionary Fiscal Policy Effective? Evidences for Tunisia and Egypt

Author

Listed:
  • Sarra BEN SLIMANE

    (College of Administrative Sciences, Najran University, Saudia Arabia)

  • Moez BEN TAHAR

    (Central University, TUNISIA; LEFA, IHEC Carthage, University of Carthage, TUNISIA)

Abstract

This paper applies multivariate Blanchard-Perotti SVAR methodology to analyze disaggregated short-term effects of fiscal policy on macroeconomic aggregates in Egypt and Tunisia. The main finding of this paper is that, strong evidence shows that fiscal policy procyclical in Egypt and Tunisia. This procyclicality arises from the weakness of automatic stabilizers and the procyclical bias of discretionary fiscal policy. The principal results of this paper are: (i) positive shocks to government spending caused crowding out effects. (ii) The impact of fiscal shocks on inflation and interest rates is mostly economic counterintuitive. Revenue shock in the short term decreases inflation and interest rate in Egypt and increases inflation and interest rate in Tunisia. An expenditure shock decreases inflation and interest rate in Egypt. The case of Tunisia seems to be more economically intuitive, in fact, an expenditure shock decreases inflation, in the short run, while in the medium run, inflation increases above the initial level, while interest rate acts in the opposite direction.

Suggested Citation

  • Sarra BEN SLIMANE & Moez BEN TAHAR, 2013. "Is Discretionary Fiscal Policy Effective? Evidences for Tunisia and Egypt," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 81-96, May.
    • Handle: RePEc:bap:journl:130207
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    References listed on IDEAS

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    Cited by:

    1. Wissem Khanfir, 2019. "Keynesian or Non-keynesian Effects of Fiscal Policy Changes: the Case of Tunisia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 335-347, March.
    2. Wissem Khanfir, 2017. "Orientation of the Fiscal Policy in Tunisia: Structural VAR Analysis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(64), pages 61-74, June.

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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