An Alternative Approach to Assess the Impacts of Countercyclical Fiscal Policy in Developing Countries

Van Hieu Nguyen () and Thai Hong Le ()
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Van Hieu Nguyen: Faculty of Finance and Banking, VNU University of Economics and Business, Vietnam, Postal: VNU University of Economics and Business, Vietnam National University,, Hanoi, Vietnam.
Thai Hong Le: Faculty of Finance and Banking, VNU University of Economics and Business, Vietnam, Postal: VNU University of Economics and Business, Vietnam National University,, Hanoi, Vietnam.

Journal of Economic Integration, 2023, vol. 38, issue 3, 439-465

Abstract: In the current literature, theoretical, and empirical studies present varying implications regarding the effectiveness of countercyclical fiscal policy in stabilizing the economy. While most studies suggest that countercyclical fiscal policy stimulates or inhibits economic growth, others document insignificant impact. However, these existing studies solely analyze the impulse of fiscal policy to the economy without distinguishing whether the impulse factor originates from within or outside the economy. Therefore, we aim to explore the effectiveness of countercyclical fiscal policy within an alternative framework that discerns the origin of the impulse factor and revisits the impacts of countercyclical policy in developing countries. Our theoretical framework argues that the countercyclical fiscal policy only makes sense if it is conducted with external debt or other external instruments. Employing the dataset that covers 201 countries over the 1990-2020 periods, we document evidence for the use of countercyclical fiscal policy in developing countries.

Keywords: countercyclical fiscal policy; external debt; fiscal multiplier; developing countries (search for similar items in EconPapers)
JEL-codes: C23 E01 E62 H63 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0882

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