How Strong are Fiscal Multipliers in the GCC?

Author/Editor:

Abdelhak S Senhadji ; Raphael A Espinoza

Publication Date:

March 1, 2011

Electronic Access:

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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:

English

Publication Date:

March 1, 2011

ISBN/ISSN:

9781455221059/1018-5941

Stock No:

WPIEA2011061

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

20

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