Fiscal Multipliers over the Growth Cycle : Evidence from Malaysia
This paper explores the stabilisation properties of fiscal policy in Malaysia using a model incorporating nonlinearities into the dynamic relationship between fiscal policy and real economic activity over the growth cycle. The paper also investigat...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120305092641 http://hdl.handle.net/10986/3268 |
| Summary: | This paper explores the stabilisation
properties of fiscal policy in Malaysia using a model
incorporating nonlinearities into the dynamic relationship
between fiscal policy and real economic activity over the
growth cycle. The paper also investigates how output
multipliers for government purchases may alter for different
components of government spending. The authors find that
fiscal policy in Malaysia has become increasingly
pro-cyclical over the last 25 years and establish that the
size of fiscal multipliers tend to change over the growth
cycle. A 1 Malaysian Ringgit rise in government (investment)
spending leads to a maximum output multiplier of around 2.7
during growth recessions, and around 2 in normal times. The
returns to government spending in Malaysia are greater when
the focus is on public investment, as opposed to
consumption. Changes in tax policy are less effective in
stimulating economic activity than direct government
spending. These results provide empirical backing to
conjectures in the recent literature implying that
procyclicality in fiscal policy reduces the effectiveness of
fiscal actions in emerging markets. |
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