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Fiscal multipliers in Emerging Market Economies: Can we learn something from Advanced Economies?

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  • Marie-Pierre Hory

Abstract

It is a well-established fact that Emerging Market Economies (EMEs) have smaller fiscal multipliers than Advanced Economies (AEs). We confirm this difference for our sample using Panel VAR and Interactive Panel VAR (Saborowski and Weber, 2013) models. Then we analyze the impact of some macroeconomic factors on multiplier effects for EMEs and AEs separately. We argue that the development degree can modify the effect of the traditional determinants of fiscal multipliers. A Panel Conditionally Homogeneous VAR (Georgiadis, 2012) is used to test this statement. First of all, we find that the tested determinants (imports, public debt, savings, unemployment and financial development) act in the same way both in EMEs and in AEs. Secondly, public spending efficiency is relatively more sensitive to each tested determinant in EMEs than in AEs. Thirdly, the most important factor for improving fiscal policy efficiency in EMEs (public debt), differs from the one in AEs (openness to trade). Last but not least, we show that improving the tested determinants individually is not sufficient to achieve the same public spending efficiency in EMEs.

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  • Marie-Pierre Hory, 2016. "Fiscal multipliers in Emerging Market Economies: Can we learn something from Advanced Economies?," International Economics, CEPII research center, issue 146, pages 59-84.
    • Handle: RePEc:cii:cepiie:2016-q2-146-4
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    More about this item

    Keywords

    Fiscal Multiplier; Spending Multiplier; PCH-VAR; Emerging Markets;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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