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 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.

Bibliographic Details

Main Authors:	Rafiq, Sohrab, Zeufack, Albert
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	2012-03-01
Subjects:	ACCELERATOR, ACCESS TO INFORMATION, AGENCY PROBLEM, AGGREGATE DEMAND, AGGREGATE SUPPLY, AUTOREGRESSION, BORROWER, BUSINESS CYCLE, BUSINESS CYCLES, CAPITAL CONSUMPTION, CAPITAL EXPENDITURE, CAPITAL FLOWS, CAPITAL TRANSFERS, CENTRAL BANK, COMPOSITION OF PUBLIC SPENDING, CONSUMERS, CONSUMPTION SPENDING, CONTINGENT LIABILITIES, CORPORATE INCOME, CORPORATE INCOME TAX, CREDIT CONSTRAINTS, CREDIT WORTHINESS, DEBT, DEMAND CURVE, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DIRECT GOVERNMENT SPENDING, DISPOSABLE INCOME, ECONOMIC ACTIVITY, ECONOMIC CYCLE, ECONOMIC DOWNTURN, ECONOMIC DOWNTURNS, ECONOMIC GROWTH, ECONOMIC OUTCOMES, ECONOMIC RECOVERY, ECONOMIC THEORY, ELASTICITY, EMERGING MARKET, EMERGING MARKET COUNTRIES, EMERGING MARKET ECONOMIES, EMERGING MARKETS, ENDOGENOUS VARIABLES, EXPECTED VALUES, EXPENDITURE, EXPENDITURES, FEDERAL RESERVE, FEDERAL RESERVE BANK, FISCAL ACTIONS, FISCAL DISCIPLINE, FISCAL POLICY, FORECAST HORIZON, FORECASTS, GDP, GENERAL EQUILIBRIUM, GOVERNMENT CONSUMPTION, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT INVESTMENT, GOVERNMENT POLICY, GOVERNMENT REVENUES, GOVERNMENT SPENDING, GROWTH MODELS, GROWTH RATE, HEALTH CARE, HOUSEHOLDS, INCOME TAX, INCOME TAXES, INFRASTRUCTURE PROJECTS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INVESTMENT EXPENDITURES, INVESTMENT PROJECTS, INVESTMENT SPENDING, INVESTMENT STRATEGY, KEYNESIAN THEORY, LIQUIDITY, LONG-TERM INVESTMENT, MACROECONOMIC CONDITIONS, MACROECONOMIC POLICIES, MACROECONOMIC VARIABLES, MACROECONOMICS, MARGINAL PRODUCTIVITY, MINISTRY OF FINANCE, MONETARY ECONOMICS, MONETARY FUND, MONETARY POLICY, MULTIPLIERS, NEGATIVE SHOCK, NET WORTH, PERSONAL INCOME, PERSONAL INCOME TAXES, POLICY DECISIONS, POLITICAL ECONOMY, POVERTY REDUCTION, PRESENT VALUE, PRIVATE CONSUMPTION, PRIVATE INVESTMENT, PRIVATE SECTOR, PUBLIC, PUBLIC CAPITAL, PUBLIC CONSUMPTION, PUBLIC ECONOMICS, PUBLIC EXPENDITURE, PUBLIC EXPENDITURE REVIEW, PUBLIC INVESTMENT, PUBLIC SPENDING, RANDOM WALK, REAL ECONOMIC GROWTH, REAL EXCHANGE RATE, REAL GDP, RECESSION, RENT SEEKING, RETURNS, RETURNS TO CAPITAL, RISK SHARING, ROADS, SALES TAX, SAVINGS, SOCIAL SECURITY, SOCIAL SECURITY CONTRIBUTIONS, SUPPLY CURVE, TAX, TAX BASE, TAX CHANGES, TAX CUT, TAX CUTS, TAX PAYMENTS, TAX POLICY, TAX REVENUE, TAX REVENUES, TAX SHOCKS, TAXATION, TOTAL SPENDING, TRADE BALANCE, TRANSFER PAYMENTS, TREASURY, TREASURY BILL, TREASURY BILL RATE, UNCERTAINTY, VOTERS, WEALTH,
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
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