Effectiveness of countercyclical fiscal policy: Evidence from developing Asia

Shikha Jha, Sushanta Mallick (), Donghyun Park and Pilipinas F. Quising

Journal of Macroeconomics, 2014, vol. 40, issue C, 82-98

Abstract: Can discretionary fiscal policy effectively stimulate output? This paper examines this question in the context of developing Asia, where many countries implemented fiscal stimulus measures to support domestic demand during the global crisis. Economic conditions normalized after the crisis but growth in Asia has slowed down since. We examine historical data from 10 emerging Asian countries to assess whether countercyclical fiscal policy can support future growth in the region. Our examination is based on identifying shocks by restricting the contemporaneous relation between fiscal and non-fiscal variables. Our most significant and consistent finding is that in developing Asia, tax cuts have a greater countercyclical impact on output than government spending. This implies there is some scope for countercyclical tax adjustments so long as fiscal sustainability is not compromised.

Keywords: Countercyclical fiscal policy; SVAR; Developing Asia; Structural shocks; Tax cuts; Government spending (search for similar items in EconPapers)
JEL-codes: E60 E62 E63 H20 H50 H60 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:40:y:2014:i:c:p:82-98

DOI: 10.1016/j.jmacro.2014.02.006

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