Testing the effects of fiscal policy shocks on output growth in recession and expansion: empirical evidence from developing countries

Rabia Rafique (), Asad Nisar () and Syed Sadaqat Ali Shah ()
Additional contact information
Rabia Rafique: Central University of Finance and Economics
Asad Nisar: Central University of Finance and Economics
Syed Sadaqat Ali Shah: Beijing International Studies University

Economic Change and Restructuring, 2024, vol. 57, issue 3, No 37, 26 pages

Abstract: Abstract This study estimates fiscal multipliers and evaluates the effectiveness of fiscal policy in a large panel of 107 developing countries over the medium term. Using Jorda's local projection model, the study finds that fiscal multipliers are more effective during recessionary times than expansion. The findings reveal that fiscal balance and investment are more effective fiscal policy tools to stimulate output growth during recessionary times in developing countries. Quantitatively, the estimates suggest that fiscal multipliers tend to be as low as 0.16 and as large as 2.1 during times of recession. The baseline results broadly hold when fiscal policy shocks are subject to a battery of robustness check exercises in the medium-term framework. Also, the study reports heterogeneities in the size of fiscal multipliers with multipliers being larger and persistent in upper middle-income economies than lower middle-income economies. Furthermore, the study finds that tax-based measures as compared to expenditure-led policies are more stimulative during recessionary times. The study has important policy implications in terms of resorting to different fiscal tools in effectively boosting the output growth during recessionary times.

Keywords: Fiscal policy; Fiscal multipliers; Local projection; Developing countries (search for similar items in EconPapers)
JEL-codes: E62 F43 H30 H60 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10644-024-09708-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ecopln:v:57:y:2024:i:3:d:10.1007_s10644-024-09708-8

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/10644/PS2

DOI: 10.1007/s10644-024-09708-8

Access Statistics for this article

Economic Change and Restructuring is currently edited by George Hondroyiannis

More articles in Economic Change and Restructuring from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().