Long‐term effects of fiscal policies in Portugal

Abstract

PurposeThis paper seeks to estimate the long‐term effects on output of different fiscal policies in Portugal.Design/methodology/approachResults are obtained from accumulated impulse response functions associated with unrestricted VAR models that include several public spending and taxation variables in addition to output.FindingsEmpirical results suggest that the effects of fiscal policies are within the Keynesian paradigm for public investment and direct taxation. In turn, non‐Keynesian effects dominate in the case of intermediate public consumption and indirect taxation where the effects are negligible.Practical implicationsCuts in public consumption and increases in indirect taxations seem to be the most desirable instruments for fiscal consolidation in Portugal. Also, deficit‐neutral policies that offset increases in public investment with increases in indirect taxes have long‐term positive effects on output. The same is true for cuts in direct taxation offset with cuts in all forms of public spending except for public investment.Originality/valueThis is one of the few papers in this literature to use disaggregated public spending and taxation data. It is also a seminal application to the Portuguese case.

The Impacts of Monetary and Fiscal Policies on Economic Growth in Malaysia, Singapore and Thailand

“…By using the structural VAR approach, Blanchard and Perotti (2002) discovered that government spending has a positive effect, however, taxation has a negative effect, on output. Besides that, Marvão Pereira and Roca-Sagalés (2011) who studied the effect of fiscal policies at the aggregate and disaggregate level using the Cholesky decomposition for shock identification focussing on Portugal found results that were consistent with Blanchard and Perotti (2002). A number of researchers, such as Jiranyakul and Brahmasrene (2007), Chatziantoniou, Duffy, and Filis (2013), Mutuku and Koech (2014), Ćorić, Šimović, and Deskar-Škrbić (2015) and Nursini (2017), also found that fiscal policy has a positive relationship with output.…”