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Fiscal multipliers in Emerging Market Economies: Can we learn something from Advanced Economies?

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  • Hory, Marie-Pierre

Abstract

It is a well-established fact that Emerging Market Economies (EMEs) have smaller fiscal multipliers than Advanced Economies (AEs). We confirm this difference for our sample using Panel VAR and Interactive Panel VAR (Saborowski and Weber, 2013) models. Then we analyze the impact of some macroeconomic factors on multiplier effects for EMEs and AEs separately. We argue that the development degree can modify the effect of the traditional determinants of fiscal multipliers. A Panel Conditionally Homogeneous VAR (Georgiadis, 2012) is used to test this statement. First of all, we find that the tested determinants (imports, public debt, savings, unemployment and financial development) act in the same way both in EMEs and in AEs. Secondly, public spending efficiency is relatively more sensitive to each tested determinant in EMEs than in AEs. Thirdly, the most important factor for improving fiscal policy efficiency in EMEs (public debt), differs from the one in AEs (openness to trade). Last but not least, we show that improving the tested determinants individually is not sufficient to achieve the same public spending efficiency in EMEs.

Suggested Citation

  • Hory, Marie-Pierre, 2016. "Fiscal multipliers in Emerging Market Economies: Can we learn something from Advanced Economies?," International Economics, Elsevier, vol. 146(C), pages 59-84.
  • Handle: RePEc:eee:inteco:v:146:y:2016:i:c:p:59-84
    DOI: 10.1016/j.inteco.2015.11.002
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    Cited by:

    1. Jair N. Ojeda-Joya & Oscar E. Guzman, 2017. "The Size of Fiscal Multipliers and the Stance of Monetary Policy in Developing Economies," Working Papers 106, Institute of Empirical Economic Research, Osnabrueck University.
    2. Marie-Pierre HORY & Grégory LEVIEUGE & Daria ONORI, 2018. "Foreign currency denominated debt and the fiscal multiplier," LEO Working Papers / DR LEO 2583, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    3. repec:spr:ijlaec:v:61:y:2018:i:1:d:10.1007_s41027-018-0131-6 is not listed on IDEAS
    4. Milan Deskar Škrbić & Hrvoje Šimović, 2015. "The size and determinants of fiscal multipliers in Western Balkans: comparing Croatia, Slovenia and Serbia," EFZG Working Papers Series 1510, Faculty of Economics and Business, University of Zagreb.
    5. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," Sciences Po publications 219, Sciences Po.
    6. repec:eee:deveco:v:134:y:2018:i:c:p:310-328 is not listed on IDEAS
    7. Eduardo A. Haddad & Natalia Q. Cotarelli, Vinicius A. Vale, 2018. "On the Numerical Structure of Local and Nationwide Government Spending Multipliers: What Can We Learn from the Greek Crisis?," Working Papers, Department of Economics 2018_05, University of São Paulo (FEA-USP).
    8. Barrot, Luis-Diego & Calderón, César & Servén, Luis, 2018. "Openness, specialization, and the external vulnerability of developing countries," Journal of Development Economics, Elsevier, vol. 134(C), pages 310-328.

    More about this item

    Keywords

    Fiscal multiplier; Spending Multiplier; PCH-VAR; Emerging Markets;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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