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Regional finance and fiscal regulation: estimating fiscal multiplier

Author

Listed:
  • Alexander Myasnikov

    (Bank of Russia, Russian Federation)

  • Vadim Tarasov

    (Bank of Russia, Russian Federation)

  • Anna Averyanova

    (Bank of Russia, Russian Federation)

  • Maxim Tkachenko

    (Bank of Russia, Russian Federation)

Abstract

This paper estimates the response of gross regional product (GRP) in the constituent entities of the Russian Federation1 (multipliers) to fiscal flow (revenue and expenditure) shocks both at the level of individual regions and across all levels of government budget, including federal and regional budgets, as well as extra-budgetary funds. The authors have compiled a database of fiscal flows of all levels for the constituent entities of the Russian Federation, incorporating proxy variables to capture all withdrawals and injections of financial resources from/into regional economies by government agencies. The study also provides an assessment of the impact of fiscal policy on regional economies in the regions grouped into clusters by the level of economic development and by the type of expenditure (social or economic expenditures). The main finding of the study is the assessment of the combined impact of fiscal revenue and expenditure multipliers across the constituent entities of the Russian Federation. This assessment has revealed an overall negative effect on the economy from expanded fiscal flow (revenue and expenditure) shocks. The negative effect of withdrawing funds from the regional economy exceeds the positive effect of injecting funds into it. The GRP response is at its maximum at the time of both revenue and expenditure shocks. A relatively positive impact on the economy is noted from the redistribution of income from regions with higher levels of economic development to those with lower levels. The accumulated effect on economic activity from increased budget expenditure in less developed regions is higher compared to more developed regions. Injecting budgetary funds into the economies of less developed regions has a greater multiplier effect than if those funds were returned to the economies of more developed regions. During periods of economic stimulus and budget deficits, regions with lower levels of economic development experience a relatively greater impact from fiscal policy on economic activity. On the contrary, during periods of fiscal consolidation and budget surpluses, these regions incur relatively higher GRP losses compared to those with higher levels of economic development.

Suggested Citation

  • Alexander Myasnikov & Vadim Tarasov & Anna Averyanova & Maxim Tkachenko, 2024. "Regional finance and fiscal regulation: estimating fiscal multiplier," Bank of Russia Working Paper Series wps138, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps138
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    References listed on IDEAS

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    1. Auerbach, Alan J. & Gorodnichenko, Yuriy & Murphy, Daniel, 2021. "Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy," European Economic Review, Elsevier, vol. 137(C).
    2. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Corrigendum: Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 320-322, August.
    3. Nicoletta Batini & Mr. Luc Eyraud & Miss Anke Weber, 2014. "A Simple Method to Compute Fiscal Multipliers," IMF Working Papers 2014/093, International Monetary Fund.
    4. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
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    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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