Cyclical variation of fiscal multipliers in Caucasus and Central Asia economies: an empirical evidence

Syed Sadaqat Ali Shah () and Muhammad Asim Afridi ()
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Syed Sadaqat Ali Shah: Central University of Finance and Economics
Muhammad Asim Afridi: COMSATS University Islamabad

Economic Change and Restructuring, 2023, vol. 56, issue 6, No 30, 4563 pages

Abstract: Abstract This study estimates fiscal multipliers and assesses fiscal policy effectiveness in the Caucasus and Central Asia economies over the medium-term. Using (Jordà, Am Econ Rev 95:161–182, 2005) local projection model, the study finds that fiscal multipliers are indeed state-dependent and that fiscal policy is more effective and has stronger effects during recession than expansion. The study indicates that the timing and type of fiscal shock matter in assessing the effects on output growth. Also, the study finds that although fiscal sustainability holds during recession, it is not the case in oil importing Caucasus and Central Asia economies as a rise in public debt ratio in fact deteriorates fiscal balance of these economies by approximately 0.001–1.6 percent. The study shows that fiscal shocks during recessions heterogeneously affect output growth at different horizons. While the study finds that fiscal balance tends to effective during recession, a timely fiscal intervention across the Caucasus and Central Asia with an optimal mix of government consumption and investment needs to be policy priority in order to stimulate the output growth during the economic downturn.

Keywords: Fiscal multipliers; CCA economies; Fiscal policy; Local projection (search for similar items in EconPapers)
JEL-codes: E32 E62 H3 H6 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10644-023-09566-w

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