Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228091
Authors: 
Hlaváécek, Michal
Ismayilov, Ilgar
Zeynalov, Ayaz
Year of Publication: 
2020
Series/Report no.: 
IES Working Paper No. 04/2020
Abstract: 
The existing literature on fiscal policy has mainly employed linear models that found a small fiscal multiplier in developing economies. These findings challenge the importance and effectiveness of fiscal policy for these countries. However, linear models are not capable of distinguishing the size of the fiscal multiplier in different phases of economic cycles. Responding to some recent studies that confirm regime dependency of a fiscal multiplier, our model enriches the literature of regime-switching models using a nonlinear panel threshold vector autoregression (PTVAR) model to measure the size of the fiscal multiplier for developing countries. Our finding confirms asymmetry in the response of GDP with regard to the economic situation. The main result of our paper shows that the response of GDP to government expenditure shock during a recovery period for developing countries is double that for developed ones. Our results also confirm a significantly larger fiscal multiplier during recovery compared to economic downturn.
Subjects: 
Fiscal multiplier
developing countries
regime-switching
the panel threshold vector autoregression model
JEL: 
E32
E62
G15
C54
Document Type: 
Working Paper

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