Effectiveness of countercyclical fiscal policy: Evidence from developing Asia

Jha, Shikha; Mallick, Sushanta; Park, Donghyun; Quising, Pilipinas

doi:10.1016/j.jmacro.2014.02.006

Cited by 78 publications

(39 citation statements)

References 35 publications

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“…An increase in tax collection can curb inflationary pressure through its impact on the aggregate demand and a reduction in tax revenue can stimulate recovery during a global financial crisis. This finding is consistent with the result of investigation of ten emerging Asian countries by Jha et al (2014). They found that tax cuts have a greater countercyclical impact on output than government spending, implying that there is some scope for countercyclical tax adjustments as long as fiscal sustainability is not compromised.…”

Section: Short-run Impact Of Fiscal Policysupporting

confidence: 89%

Lessons from Thailand's Fiscal Policy

Nidhiprabha¹

2015

Asian Economic Papers

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If rules of fiscal sustainability are observed, available fiscal space permits effective countercyclical fiscal programs. The importance of automatic fiscal stabilizers should not be underestimated. The discretionary impact of increased public spending and tax cuts can be amplified if implemented when consumer confidence investor sentiments are high. There is no evidence to support non-Keynesian effects of fiscal policy in Thailand. Unwarranted fears of unsustainable public debt and ultra-conservative fiscal policy has cost the country a lost opportunity for achieving high growth. After the military coups in 2006 and 2014, the Thai economy experienced the lowest economic growth among ASEAN countries. The budget spent on economic services was diverted into defense, increases in public sector's wages, and income transfer payments. The opportunistic political budget model predicts higher fiscal spending by incumbent democratic governments before an election to gain votes. In the case of Thailand, such spending comes after military coups, akin to a military business cycle spending.

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Section: Short-run Impact Of Fiscal Policysupporting

confidence: 89%

Lessons from Thailand's Fiscal Policy

Nidhiprabha¹

2015

Asian Economic Papers

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“…This reveals that expansionary effect is also a long run phenomenon that is not limited only to the short run (e.g. Ilzetzki et al, 2013;Jha et al, 2014). As region-specific findings, we note also that while a cut in government consumption will have an expansionary impact in CEMAC countries.…”

Section: Final Remarkssupporting

confidence: 60%

Public Consumption and Income in the Long Run: A Panel Data Study for Central African Countries

Augustin¹

2019

IJEF

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This article examines panel cointegration methods to study the long-run effect of public consumption on the real output of 10 Central African economies (ECCAS: CEMAC + 4) from 1990 to 2016. We integrate the investment in cointegration regression and take into account the transverse dependence in a panel data parameter. The results indicate on average that public consumption expenditure has a negative impact on long-term real GDP. Conversely, investment has a positive effect on income. Overall, the results show that a decrease in public consumption in the fiscal adjustment process has no effect on the growth of these economies.

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“…4 Boije et al (2010) and Calmfors et al (2012) argue that governments aim to adjust expenditure to "allow (marginal) tax rates to remain constant" and to "avoid a situation in which poor expenditure necessitates gradually higher taxes" (Boije et al, 2010, 207). 5 A large literature examines the relative impact on output of discretionary deficit financed tax cuts and spending increases, with tax cuts found by several studies to be more expansionary than spending increases (see, for example, Mountford and Uhlig (2009) and Jha et al (2014), and the references cited therein). This evidence might suggest that the policy instrument determined by a fiscal rule should be government revenues rather than expenditures.…”

Section: Introductionmentioning

confidence: 99%

Does the design of a fiscal rule matter for welfare?

Landon

Smith

2017

Economic Modelling

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This study uses Monte Carlo methods to examine the impact on welfare of several types of commonly used fiscal rules. The simulations employ an expected intertemporal welfare function and the parameters from a three-variable structural VAR estimated using data for sixteen European countries. The VAR captures the potential interaction effects between output, government spending and revenue. We find welfare gains from many, but not all, of the fiscal rules. The best rules target a zero structural deficit and cause government spending volatility to fall by about one third. However, a simple rule, where government expenditure is set equal to a one-period ahead forecast of revenue, performs almost as well. In particular, this simple rule yields a welfare gain and a reduction in volatility similar to that of the more complicated zero structural deficit rule adopted by Switzerland and several other countries. Balanced budget rules perform less well than rules that target the structural deficit. A rule that keeps real per capita government spending equal to a constant-a type of rule adopted by some U.S. states-yields relatively low welfare and often leads to significant debt accumulation. These results highlight the importance of the appropriate design of a fiscal rule.

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Effectiveness of countercyclical fiscal policy: Evidence from developing Asia

Cited by 78 publications

References 35 publications

Lessons from Thailand's Fiscal Policy

Lessons from Thailand's Fiscal Policy

Public Consumption and Income in the Long Run: A Panel Data Study for Central African Countries

Does the design of a fiscal rule matter for welfare?

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