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Effects of Fiscal Policy Shocks in CE3 Countries (TVAR Approach)

Rajmund Mirdala () and Martin Kameník

MPRA Paper from University Library of Munich, Germany

Abstract: The real output deterioration, high fiscal deficits and increased sovereign debt burden represents key phenomena that affected the maneuverability of fiscal authorities in the early crisis years. Controversy between fiscal sustainability and fiscally driven economic recovery fueled a large number of academic and policy discussions about the appropriate response of governments to the crisis challenges. Empirical literature provides mixed evidence about the effects of fiscal policy adjustments on the macroeconomic performance. Moreover, pro-cyclical patterns in fiscal policies of many countries during the pre-crisis period did not reveal clear lessons learned that would be beneficial for fiscal authorities during the crisis years. In the paper we examine effects of the fiscal policy shocks in CE3 (the Slovak Republic, the Czech Republic and Hungary) within different stages of the business cycle by employing threshold vector autoregression (TVAR) model. We calculate fiscal multipliers and generalized impulse-response functions to assess the responsiveness of the real output to the fiscal policy adjustments. The main objective is to determine whether effects of the fiscal policy shocks differ during expansion and recession. Our results indicate that the size of fiscal multipliers and responsiveness of the real output are generally higher for spending fiscal shocks while effects of revenue fiscal shocks are much less dynamic in all three countries. Moreover, results differs between upper (expansion) and lower (recession) regime as well as for the per-crisis and crisis periods.

Keywords: fiscal policy; threshold VAR; structural shocks; fiscal multipliers; generalized impulse-response function (search for similar items in EconPapers)
JEL-codes: C32 E62 H60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac, nep-pbe and nep-tra
Date: 2017-06-25
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Published in E+M. Economics and Management 2.20(2017): pp. 46-64

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https://mpra.ub.uni-muenchen.de/79919/1/MPRA_paper_79919.pdf revised version (application/pdf)

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