Expenditure Multiplier Research Articles

Բյուջետային ծախսերի կառուցվածքի ազդեցությունը տնտեսական աճի վրա (ՀՀ օրինակով) / The impact of the public expenditures structure on economic growth: Case of Armenia

The public budget is an important lever for the state regulation of the economy: it reflects the main directions and priorities of the state economic policy. In this context, there is a lot of discussion about the dynamics of the public expenditure multiplier, as well as the interaction between the structure of these expenditures and economic growth. The study of the dynamics of the multiplier of budgetary expenditures of Armenia over the last 15 years shows that it was higher than 1, making an average of 4.5 points. As a result of the research, we evaluated the impact of Armenia's budgetary expenditures on economic growth using an econometric model, based on quarterly data from 2008-2023. The results of the research show that the increase in the productive expenditures of the state budget in Armenia, such as those spent on education, healthcare and the national economy, contribute to the GDP growth rate, while the allocation of public funds to non-productive expenditures, such as defense and social sector expenditures, has a negative impact on the GDP growth rate.

Regional Heterogeneity of Government Expenditure Multipliers in Poland

Regional Heterogeneity of Government Expenditure Multipliers in Poland

The Effect of Balikpapan-Samarinda Toll Road Construction with a PPP Scheme on The Formation of Economic Structure in East Kalimantan

Economic effects are just one of the many effects of the massive infrastructure investment in Indonesia made over the past ten years. The aim of connecting Indonesia between regions is the basis for massive infrastructure growth, especially toll road infrastructure. Several funding schemes have been implemented to build toll road infrastructure, including the Public-Private Partnership (PPP) financing scheme. This PPP financing scheme was also implemented in the Balikpapan-Samarinda toll road construction. Therefore, this research attempts to capture the impact of the construction of the Balikpapan-Samarinda toll road with a PPP scheme on the formation of the economic structure in East Kalimantan province using the Input-Output (I-O) table. The investment value for the Balikpapan-Samarinda toll road is IDR 9.97 trillion was injected (shock) into gross fixed capital formation in the construction sector. The calculation results in this research show that the construction of the Balikpapan-Samarinda toll road contributed 9.8% of total demand. Apart from that, there is a significant impact on the economic structure of East Kalimantan Province, as seen from the expenditure multiplier figure with an output total of IDR 15,111 billion, a total income of IDR 2,471 billion, and a total workforce of 25,095 workers due to investment in the construction of the Balikpapan-Samarinda toll road.

Fiscal Expenditure Multipliers in South Africa: is there a crowding-out effect?

Returning an economy to fiscal solvency from episodes of large deficit requires efficient composition of national spending. It is for this reason that empirical inquiry concentrated on disaggregated expenditure components has gained relevance in the recent past. This paper employs an Autoregressive Distributed Lag Model (ARDL) to establish the size of fiscal expenditure multiplier. This paper uses time series data of disaggregated fiscal components ranging from 1982 to 2020. The results show positive but smaller (less than one) multipliers for all the disaggregated fiscal expenditure variables in the long run. Most importantly, the results show that the public sector wage bill, which takes the largest share of overall government expenditure, has a smaller multiplier compared to the rest of the expenditure items, indicating a possible crowding out impact. Effective management of the public sector wage bill and efficient budget allocation must be prioritized both in the long-run and short-run. This can be achieved by prioritizing growth-enhancing expenditures whilst keeping the public sector wage bill moderate.

Social expenditure multiplier: Assessment of economic effect and optimal values

The main aim of the study is to test the hypothesis that social expenditures are not only a source of social support and budgeting of the social sphere, but can be a significant lever of economic development, provided proper planning of their share and volume. In this regard, the authors have adapted the open-economy multiplier to assess the economic effect of social expenditures. Based on the correlation analysis of the relationship between the share of social expenditures (% of GDP) and the multiplier of social expenditures, conducted on the example of EU countries, two groups of countries are identified depending on the impact of social expenditure multiplier on GDP: the first one embraces those countries that are characterized by a growing economic return from social expenditures; the second one is where the return is declining. To determine the optimal levels of social expenditures, which can be expected to have a positive economic effect in the form of GDP growth, we have identified critical limits of the multiplier of social expenditures according to the principle: the maximum value is seen in the group of countries with positive impact; the minimal one is experienced in countries with inverse dependence of the share of social expenditures and their multiplier. As a result, the experience of financing social expenditures in the EU leads to the conclusion that the optimal share of social expenditures in GDP ranges from 28% to 30% – within these limits multiplier values exceed 1.0, i.e. there is a positive impact of social expenditures on GDP in the form of the growth of economic results over the resources consumed.

Public expenditure multipliers and informality

This paper investigates the role of informality in affecting the magnitude of the public expenditure multiplier in a panel of 142 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the multiplier. This result holds irrespective of the level of economic development and institutional quality and is robust to additional country characteristics such as trade and financial openness and exchange rate regime. In a two-sector New-Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, thereby shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks, and thus reduces the multiplier.

Среднесрочная межотраслевая эконометрическая модель экономики города Москвы

As the largest Russian region with high socio-economic indicators, Moscow affects economic development of the whole country. Therefore, the present study aims to develop a model to forecast main indicators of the Moscow economy. To accomplish the task, it is necessary to: a) choose a suitable model and forecasting methods; b) transform available regional statistics into an appropriate form; c) select an algorithm for assessing the impact of detailed budget expenditures on the Moscow economy; d) combine the obtained results to construct a forecasting model. The proposed medium-term forecasting model of the Moscow economy includes both interindustry and econometric approaches. The study justified the use of cross-validation metrics for selecting optimal econometric forecasting models. An algorithm for converting budget expenditure data from detailed expenditure codes into economic activities and product data was developed. We assessed the impact of Moscow’s budget expenditures on the economy considering intra-city interindustry connections. According to the model calculations, two complex macroeconomic forecasts were used as scenarios: the base forecast of the Ministry of Economic Development of Russia (April 2023) and the lower-growth forecast of the Institute of Economic Forecasting of the Russian Academy of Sciences (March 2023). The scenario of the Ministry of Economic Development assumes that, in 2023–2025, the Russian gross domestic product (GDP) in constant prices will increase by 1.2, 2.0 and 2.6 %, respectively. The gross regional product (GRP) of Moscow is expected to increase by 0.5, 0.8 and 1.2 %, respectively. The calculations show that, depending on these scenarios, Moscow’s GRP in current prices will grow up to 30.9-31.7 trillion roubles by 2025. Moscow budget expenditure multiplier for GRP is estimated as 0.76-0.77 for 2023-2025.

On the decline in the magnitude of the expenditure multiplier

AbstractWe investigate the causes underlying the decline in the government expenditure multiplier after the Korean War, through the lens of a structural dynamic stochastic general equilibrium model. We estimate the model using Bayesian methods and annual frequency data from 1939 to 2017. The model replicates the observed fall in the expenditure multiplier. We find that the decline is accounted for by changes in two of the model’s structural parameters, namely a decline in consumption habit persistence and a higher autocorrelation of the public expenditure processes. These changes imply a stronger negative wealth effect, a lower discretion of US fiscal policy and, consequently, a multiplier of smaller magnitude. The model identifies the news shocks to military spending, yet fiscal news plays little role in the decline of the multiplier. Rather, the news shocks account for an important fraction of medium-term variances of debt and military expenditures, which justifies their inclusion in the model.

Multiplication effects of investment in a publicly significant infrastructure project

The article features results of the assessment of the multiplier effects for the national economy from the implementation of construction project of the first stage of production facility of the Dniester HPP for the period 2010-2019. For this purpose, macroeconomic statistics were processes, on whose basis an information system of primary and calculated indicators was created using the data from the project documentation, which became the basis for calculations. A methodological approach was developed to assess multiplier effects at the macroeconomic level using the input-output balance, which is reflected in the symmetrical "input-output" table. The authors highlight the main indicators, through which the impact of the implementation of the construction project of the Dniester HPP on Ukraine’s economy is manifested, and which allow assessing its socio-economic significance: the multiplier of the output growth of the economic activity "Construction" at the expense of project investments, the GVA multiplier for all economic activities from project investments, and the GDP multiplier (public expenditure multiplier). According to the implemented approach, multiplier effects for the economy are calculated via additional output growth, additional value added growth, and GDP growth on project investments. Based on the obtained results, it is proved that: 1) the implementation of the construction project of the first stage of the production facility of the Dniester HPP had made it possible to accumulate a multiplier effect for Ukraine’s economy, confirming in practice the theory of multiplier effects and proving the efficiency of public capital investments; 2) to the greatest extent, the multiplier effect from the additional investment growth in this project is generated within the economic activity "Construction", which is explained by increased demand for domestically produced construction products.

The Keynesian Diminisher

The Keynesian expenditure multiplier is commonly viewed as a mechanism that amplifies expansionary fiscal or monetary policy. Once the assumptions on which the multiplier rests are applied to the classical quantity equation, however, it becomes obvious that the Keynesian multiplier is by far more pessimistic in this regard than the quantity equation. In light of this comparison, it makes much more sense to speak of the Keynesian “diminisher” than of the “multiplier.” The reason for the pessimistic bias of the multiplier can best be detected if the distinction is made between a one-time expansionary policy measure and a permanent one. It is only because of this pessimistic bias that the Keynesian “multiplier” can be used to justify permanent government spending programs.

Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension

Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension

Uncovering time variation in public expenditure multipliers: new evidence

Uncovering time variation in public expenditure multipliers: new evidence

Мультиплікаційні ефекти від інвестування в суспільно значущий інфраструктурний проєкт

The article features results of the assessment of the multiplier effects for the national economy from the implementation of construction project of the first stage of production facility of the Dniester HPP for the period 2010-2019. For this purpose, macroeconomic statistics were processes, on whose basis an information system of primary and calculated indicators was created using the data from the project documentation, which became the basis for calculations. A methodological approach was developed to assess multiplier effects at the macroeconomic level using the input-output balance, which is reflected in the symmetrical "input-output" table. The authors highlight the main indicators, through which the impact of the implementation of the construction project of the Dniester HPP on Ukraine’s economy is manifested, and which allow assessing its socio-economic significance: the multiplier of the output growth of the economic activity "Construction" at the expense of project investments, the GVA multiplier for all economic activities from project investments, and the GDP multiplier (public expenditure multiplier). According to the implemented approach, multiplier effects for the economy are calculated via additional output growth, additional value added growth, and GDP growth on project investments. Based on the obtained results, it is proved that: 1) the implementation of the construction project of the first stage of the production facility of the Dniester HPP had made it possible to accumulate a multiplier effect for Ukraine’s economy, confirming in practice the theory of multiplier effects and proving the efficiency of public capital investments; 2) to the greatest extent, the multiplier effect from the additional investment growth in this project is generated within the economic activity "Construction", which is explained by increased demand for domestically produced construction products.

Time-varying impact of fiscal shocks over GDP growth in Peru: An empirical application using hybrid TVP-VAR-SV models

This paper estimates hybrid TVP-VAR-SV models suggested by Chan and Eisenstat (2018a) to identify and quantify the impact of fiscal shocks on GDP growth in Peru between 1995Q1–2018Q2. According to Bayesian criteria, the best models exhibit time-varying dynamics, but not necessarily in all parameters. Considering this result, our findings suggest that: (i) fiscal shocks are significant in the whole sample according to impulse response functions, forecast error variance decomposition and historical decomposition of GDP growth; (ii) tax revenue shocks are the least important and their impact is model dependent; (iii) expenditure shocks are relevant drivers of GDP growth; and (iv) expenditure multipliers, mainly for capital spending, have been growing over the last 20 years. We recommend constant revision of estimated fiscal multipliers and suggest that, in following years, fiscal policy in Peru should be mostly driven by capital expenditure.

The Impact of General Government Final Consumption Expenditure- Economics Growth nexus for the Gambia

Traditional Keynesian macroeconomic approaches states that extraordinary levels of government consumption expenditure increase employment levels of the population, productivity and investment levels through investment multiplier effects on aggregate demand. Thus, the spending of the government increases also raises aggregate demand to the right, causing output to increase depending on the magnitude and efficiency of expenditure multipliers on growth. The focus of this paper is to examining the impact of general government final consumption expenditure- economic growth nexus for the Gambia for the periods from 1977 to 2017. The econometrics techniques used is Ordinary Least Square (OLS) method to explore the impacts either negative or positive effects of government consumption final expenditure on growth in the Gambia for the periods under study Data for the study were obtained from World Bank(WDI). The findings were interpreted based on a 5 percent significance level of alpha. The multiple regression result revealed that government consumption was not a significant impact on the economic growth of the Gambia. This opposes the traditional Keynesian macroeconomic theory. This study suggested that Capital and recurrent expenditures on economic facilities should be directed mainly to productive economics. This will stimulate activities in the economic sectors like agriculture, industry and services, that will perhaps contrary the undesirable effect of government expenditure on economic growth especially in the Gambia in which the time series study was based.

Fiscal multipliers, expectations and learning in a macroeconomic agent‐based model

AbstractThis paper evaluates the government expenditure multiplier and the influence of agents' expectations and consumption choices thereupon in a pre‐existing estimated macroeconomic agent‐based model. If the simple consumption heuristic of the baseline model is replaced by inter‐temporal optimization subject to a budget constraint based on agents' estimations of future income, the multiplier becomes significantly smaller. When agents' beliefs about the effects of expenditure shocks are explicitly introduced, they can strongly increase or decrease the multiplier. If agents are allowed learn about the effects of government expenditure on their income from repeated shocks, they are able to correctly predict these effects.

Fiscal multipliers in South Africa after the global financial crisis

Background: South Africa’s fiscal position has deteriorated considerably over the last 10 years, with debt levels reaching historical highs in the post-apartheid period. National Treasury’s intentions for fiscal consolidation have again drawn attention to the fiscal multiplier literature.Aim: The aim in the study is to calculate the size of fiscal expenditure multipliers over the period 2009 to 2019, taking into account the specific economic conditions and the funding choices of government.Setting: In the study fiscal policy is considered at a time when the debt to gross domestic product (GDP) ratio was rising rapidly.Methods: We use an econometric model to calculate the fiscal multipliers over the past decade. Our estimates take account of the specific fiscal conditions for each year, in particular the changing relationship between debt and the sovereign risk premia as well as the impact of tax increases.Results: The model suggests that the fiscal multiplier declined from 1.5 in 2010 to around zero in 2019 as the debt levels became progressively more unsustainable and large tax increases muted the aggregate demand effects from higher government expenditure.Conclusion: The low fiscal multipliers suggest that fiscal consolidation will be less costly in terms of growth forgone than generally perceived.JEL classification: C50, E62, H62, H63

The Macroeconomics of Government Spending: Distinguishing Between Government Purchases, Government Production, and Job Guarantee Programs

ABSTRACT This paper reconstructs the Keynesian income—expenditure (IE) model to include distinctions between government purchases of private sector output, government production, and government job guarantee program (JGP) employment. Analytically, including those distinctions transforms the model from a single sector model into a multi-sector model. It also surfaces the logic behind the automatic stabilizer property of JGP employment. The model is then extended to include Kaleckian income distribution effects which contribute to explaining why expenditure multipliers vary by type of fiscal expenditure. The Kaleckian version generates a new balanced budget multiplier driven by changed composition of government spending. It also illuminates some macroeconomic implications of privatization of government produced services.

Nonlinearities and expenditure multipliers in the Eurozone

AbstractWe analyze the nonlinear effects of government spending in the Euro area, by using the local projection method and by testing whether the impact of the shock depends crucially on the depth of the recession, on some structural characteristics of the Eurozone (EZ) economies, and on the monetary policy stance. We provide four insights. First, expenditure multipliers in the Euro area are not significantly higher in recessions than in expansions. However they are always above unity. Second, state dependency emerges as soon as deep recession is distinguished from ordinary downturns. Third, structural characteristics, such as the presence of automatic stabilizers, the exchange rate regime, the degree of labor market flexibility, and initial conditions, such as the debt/gross domestic product ratio, do influence the size of expenditure multipliers in the EZ. Fourth, multipliers are much higher when the policy interest rate is at the zero lower bound.

Management of the Russian Interregional Investment Distribution Using the Autonomous Expenditure Multiplier Model

An effective and competitive investment policy requires improvements to the existing tools. The ongoing COVID-19 crisis requires understanding as to how the recovery processes should be implemented. This study aims to develop a model for determining the autonomous expenditure multiplier (AEM) values, considering the investment accelerator action. The scientific novelty consists of proving that the AEM is not only an effects enhancer of the government and private investment, but also a tool to specify on the regional industrial map of Russia where investment projects will allow significant economic growth. The work’s practical significance consists of determining the possibility of applying the AEM as a tool to improve investment efficiency. The key research method was paired linear regression analysis. Based on the developed model, the AEM values for the economies of the five Central Federal District regions are calculated. Additionally, authors provide an explanation on how AEM values correlate to regional economic specialization. For example, atypically low AEM values for Moscow can be explained by high daily workforce movement among Moscow and the Moscow region. The information support difficulties of the proposed model are defined, and the directions to overcome them are proposed. Empirical results show significant differences in the AEM values of the researched regions, and that the AEM as a management tool for interregional investment distribution will help to invest the limited resources of both the state and private businesses more effectively. Additionally, authors establish that the achieved results fall in line with real macroeconomic situations within the regions, which proves that the proposed model reflects real world processes. Primary beneficiaries and end users of the study are government agencies, state-owned corporations, and members of broader scientific community.