School of Economics and Finance

No. 564: Macroeconomic Effects of Fiscal Policies: Empirical Evidence from Bangladesh, China, Indonesia and the Philippines

Geoffrey Ducanes , University of the Philippines
Marie Anne Cagas , Asian Development Bank and University of the Philippines
Duo Qin , Queen Mary, University of London and Asian Development Bank
Pilipinas Quising , Asian Development Bank
Mohammad Abdur Razzaque , University of Dhaka, Bangladesh

September 1, 2006

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This paper studies macroeconomic effects of fiscal policies in four Asian countries - Bangladesh, China, Indonesia, and the Philippines - by means of structural macroeconometric model simulations. It is found that short-term fiscal multipliers from an untargeted increase in government expenditure are positive but much less than those from an increased expenditure targeted to capital spending. The multiplier effects from fiscal expansion via a tax rate reduction are found to be typically much less than through higher spending. The effectiveness of automatic stabilizers in general, and more specifically whether expenditure or tax-side stabilizer is more effective, differs across countries.

J.E.L classification codes: E62, E17, C53, P52

Keywords:Fiscal policy, Growth, Public finance, Deficit