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Keynesian or Non-keynesian Effects of Fiscal Policy Changes: the Case of Tunisia

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Abstract

This study seeks to analyze the effects of fiscal policy on private consumption by applying the smooth transition regression model. The advantage of this model is that it allows for fiscal policy shocks to vary with the changes in the fiscal policy and helps us capture the nonlinear nature of the fiscal multipliers of government consumption and tax revenues. This paper evaluates the effect of fiscal policy in Tunisia using annual data about the 1975–2010 period. The main results show that households tend to behave in non-keynesian manner during large fiscal expansions and contractions.

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Notes

  1. Tunisia is a case of a developing countries.

  2. This measure is frequently used either as percentage of GDP or as a percentage of potential output.

  3. This criterion for fiscal consolidation is based on the persistence instead of size.

  4. Following Alesina and Ardagna (2012), a period of fiscal adjustment is successful if the debt to GDP ratio 2 years after the end of a fiscal adjustment is lower than the debt to GDP ratio in the last year of the adjustment. In addition, a period of fiscal adjustment is expansionary if real GDP growth during the adjustment period is higher than the average growth the country experienced in the 2 years before.

  5. Miller and Russek (2003) identified unusual fiscal expansions and contractions based on the change in the cyclically adjusted primary fiscal balance, either an increase or a decrease lasting at least 3 years.

  6. Fiscal adjustment periods are based on the observed change in the fiscal deficit as a share of GDP above 1.5 percentage points of GDP (Gupta et al. 2004)

  7. Between 1998 and 2004, a few years prior to the European Union accession

  8. Giavazzi et al. (2005) defined a large and persistent impulse, « as one in which the full employment surplus, as a percent of potential output, changes by at least 1.5 percentage points per year over a 2-year period ».

  9. Teräsvirta (2004) defined logistics STR model with K = 1, where the transition function is assumed to be a logistic function of order 1, who takes the following form: G(γ, c, st) = [1 + exp{−γ(st − c)}]− 1.

  10. Primary deficit is the deficit excluding interest payments on the public debt.

  11. In this case, our ESTR model is an LSTR2 model with c1 = c2

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  1. Faculty of Economics and Management of Sfax, Sfax, Tunisia

    Wissem Khanfir

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  1. Wissem Khanfir
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Correspondence to Wissem Khanfir.

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Khanfir, W. Keynesian or Non-keynesian Effects of Fiscal Policy Changes: the Case of Tunisia. J Knowl Econ 10, 335–347 (2019). https://doi.org/10.1007/s13132-017-0457-1

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