Fiscal Multipliers in the ECCU

Abstract

The multipliers of taxes, and government consumption and investment expenditure for the Eastern Caribbean Currency Union (ECCU) are estimated using vector autoregression models with panel data. The impact and long-run multipliers are below unity, suggesting that a great extent of the intended impulse ends up expanding imported demand. The long-run multipliers of taxes and consumption expenditure are non-different from zero statistically, while public investment has a long-run multiplier of 0.6. The results suggest that countercyclical policies to stimulate growth should focus on public investment.

Keywords: Fiscal policy, Caribbean, Eastern Caribbean Currency Union, Economic models, Government expenditures, Fiscal Multipliers, Panel VAR, OECS, ECCU., fiscal variables, tax revenues, tax revenue, fiscal policies, fiscal shocks, fiscal variable, public spending, government expenditure, public expenditure, government spending, tax multiplier, fiscal impulse, aggregate demand, government revenue, tax cuts, tax collection, expenditure on investment, expansionary fiscal, tax reductions, public finance, expenditure programs, public debt, tax increase, fiscal affairs department, taxation, fiscal stimulus, public expenditures, expansionary fiscal policies, debt service, fiscal affairs, public finances

JEL Classification: E62, C30