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Fiscal policy in the BRICs

Listed author(s):
  • Jawadi Fredj

    ()

    (University of Evry Val d’Essone and France Business School, Campus Amiens, 2, rue Facteur Cheval, 91025 Evry, France)

  • Mallick Sushanta K.

    (Queen Mary University of London, School of Business and Management, Mile End Road, London E1 4NS, UK)

  • Sousa Ricardo M.

    (London School of Economics, Financial Markets Group (FMG), Houghton Street, London WC2 2AE, UK; and Department of Economics and Economic Policies Research Unit (NIPE), University of Minho, Campus of Gualtar, 4710-057, Braga, Portugal)

This paper assesses the macroeconomic impact of fiscal policy shocks for four key emerging market economies – Brazil, Russia, India and China (BRICs) – using a fully simultaneous system of equations. We also estimate fiscal policy rules and analyze the importance of nonlinearity using a smooth transition (STR) model. Drawing on quarterly data, we find that government spending shocks have strong Keynesian effects for this group of countries while, in the case of government revenue shocks, a tax hike is harmful for output. This suggests that there is no evidence in favor of “expansionary fiscal contraction” in the context of emerging economies where spending policies are largely pro-cyclical. Our findings also show that considerations about growth (in the case of China), exchange rate and inflation (for Brazil and Russia) and commodity prices (in India) drive the nonlinear response of fiscal policy to the dynamics of the economy.

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Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 18 (2014)
Issue (Month): 2 (April)
Pages: 1-15

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Handle: RePEc:bpj:sndecm:v:18:y:2014:i:2:p:15:n:6
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