Fiscal Policy Effectiveness in a Small Open Economy: Estimates of Tax and Spending Multipliers in Paraguay

March 22, 2017

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Format: Chicago

Antonio David. Fiscal Policy Effectiveness in a Small Open Economy: Estimates of Tax and Spending Multipliers in Paraguay, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper presents estimates of fiscal multipliers in Paraguay following different econometric techniques and identification approaches. The results point to multipliers for capital expenditure that are substantially higher than multipliers for current expenditure. In addition, the evidence suggests that tax multipliers are close to zero when using conventional identification approaches, but estimates can be much larger when considering the “narrative” approach. One implication of the results is that the balanced budget multiplier for Paraguay i.e. the effect of on output of an increase in expenditures (in particular capital expenditure) financed by taxes is likely to be positive.

Subject: Capital spending, Current spending, Expenditure, Fiscal policy, Revenue administration

Keywords: Capital spending, Central America, Cumulative multiplier, Current spending, Expenditure multiplier, Fiscal Multipliers, Fiscal Policy, Government expenditure, Government spending multiplier, Impact multiplier, Local Projection Method, Multiplier, Multiplier range, Paraguay, Tax multiplier, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/063
Stock No:

WPIEA2017063
ISBN:

9781475588262
ISSN:

1018-5941

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