Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/12792

TitleFiscal policy in the BRICs
Author(s)Jawadi, Fredj
Mallick, Sushanta K.
Sousa, Ricardo M.
KeywordsFiscal policy
Emerging markets
Fully simultaneous system of equations
Sign-restrictions VAR
Smooth transition regression model
Issue date12-Jul-2011
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Abstract(s)This paper assesses the macroeconomic impact of fiscal policy shocks for four key emerging market economies - Brazil, Russia, India and China (BRICs) – using a Bayesian Structural Vector Auto-Regressive (BSVAR) approach, a Sign-Restrictions Vector Auto-Regressive framework and a Panel Vector Auto-Regressive (PVAR) model. To get a deeper understanding of the government’s behaviour, we also estimate fiscal policy rules using a Fully Simultaneous System of Equations and analyze the mportance of nonlinearity using a smooth transition (STAR) model. Drawing on quarterly frequency data, we find that government spending shocks have strong Keynesian effects for this group of countries while, in the case of government revenue shocks, a tax hike is harmful for output. This suggests that there is no evidence in favour of ‘expansionary fiscal contraction’ in the context of emerging economies where spending policies are largely pro-cyclical. Our findings also show that considerations about growth (in the case of China), exchange rate and inflation (for Brazil and Russia) and commodity prices (in India) drive the nonlinear response of fiscal policy to the dynamics of the economy. All in all, our results are consistent with the idea that fiscal policy can be a powerful stabilization tool and can provide an important short-term economic boost for emerging markets, in particular, in the context of severe downturns as in most recent financial turmoil.
TypeWorking paper
URIhttp://hdl.handle.net/1822/12792
Peer-Reviewedno
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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