How Strong Are Fiscal Multipliers in the GCC? An Empirical Investigation

Author/Editor: Raphael A. Espinoza ; Abdelhak S. Senhadji
Publication Date: March 01, 2011
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The effectiveness of fiscal policy in smoothing the impact of shocks depends critically on the size of fiscal multipliers. This is particularly relevant for the GCC countries given the need for fiscal policy to cushion the economy from large terms of trade shocks in the absence of an independent monetary policy and where fiscal multipliers could be weak dues to substantial leakages through remittances and imports. The paper provides estimates of the size of fiscal multipliers using a variety of models. The focus is on government spending since tax revenues are small. The long-run multiplier estimates vary in the 0.3-0.7 range for current expenditure and 0.6-1.1 for capital spending, depending on the particular specification and estimation method chosen. These estimates fall within the range of fiscal multiplier estimates in the literature for non-oil emerging markets.
Series: Working Paper No. 11/61
Subject(s): Fiscal policy | External shocks | Government expenditures | Nonoil sector

Author's Keyword(s): Gulf Cooperation Council | government spending | fiscal policy
Publication Date: March 01, 2011
ISBN/ISSN: 9781455221059/1018-5941 Format: Paper
Stock No: WPIEA2011061 Pages: 20
US$18.00 (Academic Rate:
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