Analysis of the effects of fiscal policy shocks in the Baltic region

Abstract

The study aims to compare the effects of fiscal policy shocks in three Baltic countries – Estonia, Latvia, and Lithuania - within SVAR framework, using the identification scheme proposed by Blanchard and Perotti (2002). The time sample covers quarterly data over the period of 2002q1-2019q4. The main idea of the study is to identify the effects of fiscal policy shocks in three euro area member states under a single monetary policy of the European Central Bank, but with country-specific fiscal policy shaped by the European fiscal framework. The results show that, generally, in the short term (up to four quarters), output reacts consistently with the Keynesian view, emphasizing the importance of using discretionary fiscal policy tools in stimulating economic activity in the Baltic region. However, in Estonia and Latvia, the calculated impact multipliers for net taxes are larger than spending multipliers. Although each country reacts differently to its country-specific fiscal shock, the response to the euro area money market interest rate innovation is quite similar with respect to the direction of the effect, which may indicate the robustness of the Baltic region in terms of the euro area shocks. Thus, the results emphasize the importance of conducting domestic fiscal policy adapted to the conditions of each of the analysed economies. Based on the assumptions and the methodology used in this study, the obtained findings show the limited effects of spending on Baltic economies in comparison with the effects caused by the shocks in net taxes. Moreover, due to the lack of large-scale analysis regarding the effectiveness of fiscal policy in Baltic states, the obtained results are a valuable contribution to the debate about the ‘appropriate’ size of the fiscal multipliers for the Baltic region.

Social expenditure multiplier: Assessment of economic effect and optimal values

“…Based on the above calculations, we can fully confirm hypothesis H1. As in the works of other researchers, e.g., Szymańska (2022), it was found that EU countries are very heterogeneous in terms of development trends and the influence of social content factors. There are two groups of countries: with a positive impact of social expenditures on economic development, as well as countries where negative dependencies are already observed, which may be a sign of the effect of declining efficiency as a result of the previously achieved very high level of social protection of the population due to the financing of national social programs.…”

“…Thus, some authors have confirmed the positive role of social spending in economic processes, in particular in GDP growth, at least due to education and health spending (Stuckler et al, 2017;Kutasi & Marton, 2020), although the total amount of government expenditure has a positive effect on GDP growth (Ahuja & Pandit, 2020). At the same time, the results were obtained indicating the absence of such a visible connection (Cammeraat, 2020), its different orientation even in relatively close countries (Szymańska, 2022), or a positive effect on real GDP in the medium term but a negative effect in the long run (Kim & Ahn, 2020).…”

“…None of them has a permanent effect, only the mechanism of action is common. So, e.g., even Baltic countries that are very close in terms of economic level and structure of the economy have differences in the impact of fiscal multipliers on economic development and social benefits (Szymańska, 2022). Structural and resource factors can be taken into account in the search for opportunities to ensure the multiplier effect of government social expenditures, as, e.g., in the case of the search for "non-oil" growth opportunities (Abbasov et al, 2021).…”

The relationship between monetary stability and central bank independence: The case of Azerbaijan

“…In particular, researchers find that in both developed http://dx.doi.org/10.21511/bbs.19 (1).2024.07 and developing countries, higher CBI levels are associated with reduced volatility in inflation. Even after considering additional variables such as fiscal policy, external shocks, and the degree of economic development that might impact inflation stability, this relationship persists (Szymańska, 2022). Additionally, the study offers evidence that suggests a stronger correlation between CBI and inflation stability may exist in countries with higher levels of instability and corruption.…”

Social integration of internally displaced persons in Ukraine: Problems and challenges for governing local communities

“…The consequences of migration attract no less attention in view of both the negatives and potential benefits associated with migratory changes in the composition of communities. Among the typical areas of such research are changes in the labor market (Al-Dalahmeh & Dajnoki, 2021; Urbański, 2021), especially regarding the employment of highly educated workers (Oliinyk et al, 2022;Attamah et al, 2023), changes in earnings unfavorable for the locals (Kersan-Škabić & Blažević Burić, 2022), and the tax burden associated with changes in social policy (Szymańska, 2022). Such changes are especially noticeable for communities dependent on government financial assistance in forming their budgets (Gavkalova et al, 2022).…”