Description: Fiscal Multipliers over the Growth Cycle : Evidence from Malaysia

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 investigat...

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Bibliographic Details
Main Authors:	Rafiq, Sohrab, Zeufack, Albert
Language:	English
Published:	2012
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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Summary:	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.

Fiscal Multipliers over the Growth Cycle : Evidence from Malaysia

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