Fiscal Policy Effectiveness in a Small Open Economy: Estimates of Tax and Spending Multipliers in Paraguay
30 Pages Posted: 25 Apr 2017
Date Written: March 2017
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.
Keywords: Paraguay, Fiscal policy, Western Hemisphere, Fiscal Multipliers, Local Projection Method, General, Macroeconomic Analyses of Economic Development
JEL Classification: E62, H20, H50, O11
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