Dynamic Effects of Fiscal Spending: A Panel Data Analysis of Selected South-Asian Countries
Author: Muhammad Zaman

The role of fiscal policy to stabilize the economy and stimulate the economic activity has been a debatable issue among the scholars and policy makers. The following study characterizes the dynamic effects of fiscal spending on key macroeconomic variables; output, inflation and interest rate in four South-Asian countries for the time period of 1990-2015. In order to serve the purpose identification scheme by Blanchard and Perotti (2002) has been employed in panel structural vector autoregressive (SVAR) model. The main findings of the study can summarized as follows: Government expenditure shock have positive impact on output with multiplier less than one i.e. output increases less than increase in expenditure. In response to a fiscal spending expansion the interest rate raises which can ultimately cause private investment to crowd out. A positive fiscal spending stimulus induces a persistent rise in inflation, a result of rise in demand for goods and services in the economy. It is also found that the effect of a tax revenue shock on inflation is positive, on output is negative contemporaneously but it has positive impact on output dynamically. Finally, the response of interest rate to rise in public tax revenue is near neutral initially and becomes negative in long-term. Supervisor:- Dr. Attiya Yasmin Javid

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Supervisor: Attiya Yasmin Javid

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