Is Discretionary Fiscal Policy Effective? Evidences for Tunisia and Egypt

Sarra Ben Slimane and Moez Ben Tahar ()

Review of Economics & Finance, 2013, vol. 3, 81-96

Abstract: This paper applies multivariate Blanchard-Perotti SVAR methodology to analyze disaggregated short-term effects of fiscal policy on macroeconomic aggregates in Egypt and Tunisia. The main finding of this paper is that, strong evidence shows that fiscal policy procyclical in Egypt and Tunisia. This procyclicality arises from the weakness of automatic stabilizers and the procyclical bias of discretionary fiscal policy. The principal results of this paper are: (i) positive shocks to government spending caused crowding out effects. (ii) The impact of fiscal shocks on inflation and interest rates is mostly economic counterintuitive. Revenue shock in the short term decreases inflation and interest rate in Egypt and increases inflation and interest rate in Tunisia. An expenditure shock decreases inflation and interest rate in Egypt. The case of Tunisia seems to be more economically intuitive, in fact, an expenditure shock decreases inflation, in the short run, while in the medium run, inflation increases above the initial level, while interest rate acts in the opposite direction.

Keywords: SVAR model; Fiscal shocks; Government spending; Tax revenues (search for similar items in EconPapers)
JEL-codes: C12 E32 E62 H30 H50 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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