Abstract
The global financial crisis and the attendant Great Recession of 2007–2009 have spawned a full-scale re-examination on the effectiveness of fiscal policy throughout the world. While this has led to a plethora of analyses in developed countries, the same abundance of the work has not been evident for developing counties. This paper uses time-series analysis to examine the multiplier impact of fiscal policy on growth and other macroeconomic variables in the case of four Caribbean states. Although these countries have similar degrees of openness, they differ in debt burdens and economic structures, thus providing a natural laboratory for this investigation. We concluded that fiscal multipliers among the sample countries are quite low and that the contemporaneous fiscal stance appears to be pro-cyclical.
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Notes
Similarly, \( v_t^y \),\( v_t^p v_t^m \), \( v_t^c \) and \( v_t^r \) would be the structural orthogonal shocks in the output, prices, imports, private consumption, and the 90-day Treasury bill rate.
Several approaches were considered for deriving the output gap including: the linear trend method, the quadratic approach, the Hoderick-Prescott filter and the Fixed length symmetric (Christiano-Fitzgerald) Band-Pass Filter.
We also investigated government expenditure cycles and revenue cycles independently and found a similar result for government expenditure cycles. Result using revenue cycles were only showed contemporaneous effects with a positive coefficient. Details can be provided on request.
The Unit root test, lag selection criteria test, and the results of the unrestricted VAR are available on request.
The cumulative dynamic multiplier at a given quarter is obtained as the ratio of the cumulative response of GDP and the cumulative response of government expenditure (de Castro and Hernandez de Cos 2008).
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Guy, K., Belgrave, A. Fiscal Multiplier in Microstates: Evidence from the Caribbean. Int Adv Econ Res 18, 74–86 (2012). https://doi.org/10.1007/s11294-011-9338-8
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DOI: https://doi.org/10.1007/s11294-011-9338-8