How Strong are Fiscal Multipliers in the GCC?

Download or read book How Strong are Fiscal Multipliers in the GCC? written by Mr.Raphael A. Espinoza and published by International Monetary Fund. This book was released on 2011-03-01 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.