How Strong are Fiscal Multipliers in the GCC? An Empirical Investigation

21 Pages Posted: 28 Mar 2011

See all articles by Raphael A. Espinoza

Raphael A. Espinoza

International Monetary Fund (IMF)

Abdelhak Senhadji

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: March 2011

Abstract

The effectiveness of fiscal policy in smoothing the impact of shocks depends critically on the size of fiscal multipliers. This is particularly relevant for the GCC countries given the need for fiscal policy to cushion the economy from large terms of trade shocks in the absence of an independent monetary policy and where fiscal multipliers could be weak dues to substantial leakages through remittances and imports. The paper provides estimates of the size of fiscal multipliers using a variety of models. The focus is on government spending since tax revenues are small. The long-run multiplier estimates vary in the 0.3-0.7 range for current expenditure and 0.6-1.1 for capital spending, depending on the particular specification and estimation method chosen. These estimates fall within the range of fiscal multiplier estimates in the literature for non-oil emerging markets.

Keywords: Cooperation Council for the Arab States of the Gulf, External shocks, Fiscal policy, Government expenditures, Nonoil sector, Saudi Arabia

Suggested Citation

Espinoza, Raphael A. and Senhadji, Abdelhak, How Strong are Fiscal Multipliers in the GCC? An Empirical Investigation (March 2011). IMF Working Paper No. 11/61, Available at SSRN: https://ssrn.com/abstract=1795820

Raphael A. Espinoza (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://oxford.academia.edu/RaphaelEspinoza

Abdelhak Senhadji

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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