How Strong are Fiscal Multipliers in the GCC?
IMF Working Papers, March 1, 2011
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Bibliographic details
- Authors: Raphael A Espinoza, Abdelhak S Senhadji
- Published: March 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455221059.001
Overview
- The paper examines the size of fiscal multipliers in the GCC countries and the effectiveness of fiscal policy in smoothing the impact of shocks.
- Focus is on government spending because tax revenues are small.
- Fiscal multipliers in the GCC are evaluated in the context of: absence of an independent monetary policy, and potential leakages through remittances and imports.
Key findings
- Long-run multiplier estimates for current expenditure vary in the "0.3-0.7" range.
- Long-run multiplier estimates for capital spending vary in the "0.6-1.1" range.
- These estimates depend on the particular specification and estimation method chosen.
- The estimated ranges "fall within the range of fiscal multiplier estimates in the literature for non-oil emerging markets."
Methodology and focus
- The paper provides estimates using a variety of models (specific model names and technical details are in the full paper).
- The empirical focus is on government spending rather than taxes, reflecting the small role of tax revenues in GCC fiscal structures.
Policy implications
- The effectiveness of fiscal policy in cushioning large terms of trade shocks is linked to the size of fiscal multipliers; thus understanding multiplier magnitudes is critical for policy design in the GCC.
- Leakages through remittances and imports may weaken fiscal multipliers, which policymakers should account for when designing fiscal interventions in the absence of independent monetary policy.