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Fiscal adjustments: lessons from and for the Baltic states

Author

Listed:
  • Violeta Klyvienė

    (European Parliament, Brussels, Belgium)

  • Audronė Jakaitienė

    (Institute of Data Science and Digital Technologies, Vilnius university, Vilnius, Lithuania)

Abstract

This paper aims to investigate the effects of various fiscal policy measures for small and open economies by analysing the implications of fiscal shocks in the Baltic countries based on data for the period from 1995 to 2018. For this purpose, we have chosen structural VAR estimation methods following Blanchard, O., & Perotti, R. (2002). An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output. The Quarterly Journal of Economics, 117(4), 1329–1368, approach and relied on local projections for robustness checks. We find that the impact on growth of direct taxes, government consumption and public investment is strong and persistent in the analysed cases. Although the responses of FDI to fiscal shocks are less consistent as compared to output, in most cases, we get strong and persistent negative reactions in FDI to increasing tax burden.

Suggested Citation

  • Violeta Klyvienė & Audronė Jakaitienė, 2022. "Fiscal adjustments: lessons from and for the Baltic states," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 22(1), pages 1-27.
    • Handle: RePEc:bic:journl:v:22:y:2022:i:1:p:1-27
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    File URL: https://www.tandfonline.com/doi/epdf/10.1080/1406099X.2021.2020985
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    More about this item

    Keywords

    Fiscal shocks; fiscal multipliers; fiscal policy; the Baltic states; investment; economic recession;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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