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Impact of the fiscal manoeuvre on GDP growth: estimation of short-term effects using fiscal multipliers

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  • Sergey Vlasov

    (Bank of Russia, Russian Federation)

Abstract

The Note analyses fiscal multipliers in the Russian economy and estimates the im-pact of the fiscal manoeuvre, the start of which is planned for 2019, on GDP growth. Fiscal multipliers in the Russian economy proved to be rather low, in part due to “leakages” through imports and relatively low efficiency of budgetary funds. We estimate the multipli-er of total revenue of Russia’s budget at -0.75 and the multiplier of total spending at +0.28. Therefore, changes in the budget revenue produce a stronger effect on GDP growth com-pared with the effect from the comparable change in expenditures. However, compared to changes in expenditures, changes in revenue feed through to GDP growth more slowly. Our analysis of the components of total expenditure based on the Russian and inter-national experience suggests that in terms of the functional classification of expenditure, the biggest is the fiscal multiplier for economic spending, followed by military and social blocks. Spending on general state issues have a negative multiplier. The analysis of the economic classification of expenditure showed that the investment component has the highest multiplier. It exceeds more than twofold multipliers for other components. The estimation of the effects of the fiscal manoeuvre using fiscal multipliers gives grounds for expecting in the medium term additional 0.2-0.3 pp to GDP growth per year on average as a result of the manoeuvre. However, the actual effect may prove materially higher than the estimated one in case of efficient fund utilisation (e.g., a thorough selec-tion of investment projects) as well as rapid cost cutting coupled with labour productivity growth by VAT payers. This will raise the fiscal multiplier for spending and lower it for rev-enue. Additionally, fiscal multipliers demonstrate a short-term effect of the fiscal policy on GDP growth without assessing its impact on the potential growth, which should also be positive. The current situation in the economy bordering on the full utilisation of resources may serve as a constraining factor, thereby lowering the efficiency of their utilisation.

Suggested Citation

  • Sergey Vlasov, 2018. "Impact of the fiscal manoeuvre on GDP growth: estimation of short-term effects using fiscal multipliers," Bank of Russia Working Paper Series note17, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:note17
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    References listed on IDEAS

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