## Exploring the Output Effect of Fiscal Policy Shocks in Low Income Countries

_IMF Working Papers, January 17, 2020_

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## Bibliographic details
- Authors: Jiro Honda, Hiroaki Miyamoto, Mina Taniguchi
- Published: January 17, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513526034.001

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### Authors and publication
- By Jiro Honda, Hiroaki Miyamoto, Mina Taniguchi
- January 17, 2020
- IMF Working Papers, Working Paper No. 2020/012
- Pages: 28
- Volume: 2020
- Issue: 012
- DOI: https://doi.org/10.5089/9781513526034.001
- ISBN: 9781513526034
- ISSN: 1018-5941
- Stock No: WPIEA2020012

### Research question and methodology
- Research question: What are the output effects of fiscal policy (government spending shocks) in low income countries (LICs)?
- Method: Analysis based on the local projection method.

### Key findings on output effects
- The output effects in LICs are markedly lower than those in AEs.
- The output effects in LICs are marginally smaller than those in EMs.
- In LICs, output effects are larger under the following conditions:
  - during recessions;
  - under a fixed exchange rate regime;
  - with higher quality of institutions.
- The analysis could not confirm any statistically significant output effect under floating exchange rate regimes.
- Implication: For estimation of output effects of fiscal spending shocks, it is important to consider the state of the economy and the country’s structural characteristics.

### Policy implications and recommendations
- The output costs of fiscal adjustment in LICs may not be as large as previously thought, especially if:
  - adopted outside of a recession;
  - based on cutting public consumption;
  - accompanied by reform to enhance institutions.
- Fiscal policy design in LICs should account for:
  - cyclical position (recession versus non-recession);
  - exchange rate regime (fixed versus floating);
  - institutional quality.

### Subjects and keywords
- Subject: Exchange rate arrangements, Expenditure, Fiscal multipliers, Fiscal policy, Floating exchange rates, Foreign exchange
- Keywords: countercyclical fiscal policy, Exchange rate arrangements, Fiscal multipliers, Fiscal Policy, fiscal policy shock, Floating exchange rates, government spending shock, LIC economy, Low Income Countries, output effect, Sub-Saharan Africa, WP

*Source: IMF Working Paper "Exploring the Output Effect of Fiscal Policy Shocks in Low Income Countries" (January 17, 2020).*

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_Source: https://www.imf.org/en/publications/wp/issues/2020/01/17/exploring-the-output-effect-of-fiscal-policy-shocks-in-low-income-countries-48939_