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Growth-Friendly Fiscal Strategies for the Czech Economy

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  • Robert Ambrisko

Abstract

I build a structural scal DSGE model to address three important issues of Czech scal policy. First, I calculate scal multipliers for several revenue and expenditure categories of the government budget, the largest of which after the rst year are government consumption (0.6), government investment (0.5), and social security contributions paid by employers (0.4). Second, I use scal multipliers to derive the appropriate composition of growth-friendly scal strategies, e.g., the composition of temporary scal consolidation is more revenue-based, raising mainly consumption tax (a share of 30% in the composition) and wage tax (17%), accompanied by cuts in other social benets (35%) on the expenditure side. Third, I show that scal devaluation can boost real GDP growth by 0.4 percentage points in the rst year, when a budget-neutral tax shift of the magnitude of 1% of GDP occurs from direct taxes to consumption tax and capital tax. These results corroborates that the government can easily support the economy by appropriately adjusting scal instruments.

Suggested Citation

  • Robert Ambrisko, 2016. "Growth-Friendly Fiscal Strategies for the Czech Economy," CERGE-EI Working Papers wp563, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp563
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    More about this item

    Keywords

    Bayesian estimation; DSGE; scal consolidation; scal devaluation; scal multipliers; scal policy; scal stimulus; scal strategy;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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