Can Contractionary Fiscal Policy be Expansionary? Evidence from Tunisia

Wissem Khanfir

Asian Journal of Economic Modelling, 2017, vol. 5, issue 2, 223-232

Abstract: In this paper, we study the non-linear relationship between fiscal policy and private consumption in Tunisia from 1975 to 2010. Our analysis, which is based on a threshold regression (TR) model proposed by Hansen (2000) confirms the non-linearity of the relationship between fiscal policy and private consumption, indicating an estimated threshold of public debt equal to 57% of GDP. The empirical results indicate that when public debt exceeds 57% of GDP, tax revenues are positively associated with private consumption. This finding confirms the expansionary fiscal contraction (EFC) hypothesis, occurring via tax revenues increases.

Keywords: Private consumption; Fiscal policy; Expansionary fiscal contraction Public debt; Threshold regression model; Non-linearity; Tunisia. (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:asi:ajemod:v:5:y:2017:i:2:p:223-232:id:901

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