The power of fiscal multipliers in Croatia

Abstract

This paper investigates fiscal multipliers in Croatia in the period 1996Q1-2011Q4. For this purpose, a Blanchard Perotti three variable baseline SVAR is employed as a no regime-switch model, along with a four variable baseline STVAR as a regime-switch model. Results show that during recessions fiscal multipliers in Croatia tend to be much larger and move in line with Keynesian assumptions, i.e. a positive government spending shock increases output, private consumption and private investment, while oppositely a positive tax shock worsens the same macroeconomic variables. Moreover, during recession times government spending for purchases of goods and services seems to be the most effective fiscal instrument for boosting economic activity.

Empirical estimates of fiscal multipliers for South Africa

“…In a survey of the literature, Ramey (2016) found that most estimates of the government spending multiplier in the developed world vary between 0.6 and 1.5. Much less evidence is available for the developing world, but the scarce empirical literature suggests that multipliers are smaller in emerging-and low-income economies (see, for example, Alichi et al 2019;Batini et al 2014;Estev ao and Samaké 2013;Gnip 2014;Ilzetzki 2011;Ilzetzki et al 2013;IMF 2008;Kraay 2012). Empirical research into spending multipliers for South Africa is even more scarce.…”

“…Leigh et al (2010) used similar narrative measures to investigate the impact of tax increases across countries, while Cloyne (2013) applied this method to the United Kingdom. In a series of papers, Mertens and Ravn (2012, 2013, 2014 utilized the Romer and Romer narrative series in creative ways. Mertens and Ravn (2012) decomposed the series into anticipated and unanticipated shocks, while Mertens and Ravn (2013) further decomposed the unanticipated parts of the series into changes relating to personal income tax (PIT) and corporate income tax (CIT), respectively.…”

“…;Bachmann and Sims (2012);Callegari et al (2012);Fazzari et al (2015);Figueres (2017);Gnip (2014);Owyang et al (2013);Ramey and Zubairy (2018);Tagkalakis (2008). Studies dealing with the zero lower bound includeChristiano et al (2011);Eggertsson (2011);Eggertsson and Woodford (2003);Fernández-Villaverde et al (2015);Leeper et al (2017);Woodford (2011).…”

The effectiveness of fiscal policy within business cycle – Ricardians vs. non-Ricardians approach

“…Caldara & Kamps, 2008Perotti, 2004) and the sign restriction (Mountford & Uhlig, 2009). The (S)VAR models or panel VAR models are often used for fiscal multiplier estimation for developing and low-income countries, as well as CEE countries (Baranowski, Krajewski, Mackiewicz, & Szymańska, 2016;Grdović Gnip, 2014;Ilzetzki, Mendoza, & Végh, 2013;Kraay, 2013;Mirdala, 2009). The post-crisis VAR models have been modified to the smooth transition vector autoregressive models (STVAR) (see Auerbach & Gorodnichenko, 2012 for US, Hernández de Cos & Moral-Benito, 2016 for Spain or Benčík, 2014 for CEE countries) or to nonlinear TVAR (threshold VAR) models (Batini, Callegari, & Melina, 2012;Baum et al, 2012;Baum & Koester, 2011;Mittnik & Semmler, 2012).…”

Comparison of the stabilising effects of government spending shocks in the Czech Republic, Hungary and Poland

“…In our study we investigate the effects of spending shocks on three CEE countries, and compare the strength and significance of this impact in countries with the same period of membership in the EU. The literature provides some papers that examine the effects of government spending in a single or a group of CEE countries (Baranowski, Krajewski, Mackiewicz, & Szyma nska, 2016;Crespo Cuaresma, Eller, & Mehrotra, 2011;Haug, Je Rdrzejowicz, & Sznajderska, 2013;Grdovi c Gnip, 2014;Lendvai, 2007;Mirdala, 2009, among others). This article provides a comparative analysis of government spending shocks in the Czech Republic, Hungary and Poland, based on the same methodology and the same data source for each country.…”