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Empirical Economics

Erschienen in:

23.06.2023

Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension

verfasst von: Paras Sachdeva, Wasim Ahmad, N. R. Bhanumurthy

Erschienen in: Empirical Economics | Ausgabe 1/2024

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Abstract

In this paper, we study the transmission and effectiveness of the public expenditure shock across business cycle phases in the Indian economy. The empirical results suggest that the deflationary impact of the public expenditure shock and the subsequent accommodative response of interest rates exhibit a countercyclical public expenditure multiplier during the contraction period. Moreover, the large and significant negative impact of the public expenditure shock on inflation and the interest rate has resulted in a larger public expenditure multiplier during a supply-side recession than a demand-side recession. Based on empirical evidence, we suggest that policymakers consider the presence of nonlinearities in the transmission and effectiveness of the public expenditure shock while taking fiscal policy measures.

Vorheriger Artikel Asymmetric effects of monetary policy: evidence from India

Nächster Artikel Income inequality and fiscal policy over the political cycle

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Engel’s law can partially explain this asymmetry, as the proportion of food expenditure in total expenditure is higher in EMEs than in the USA.

Here, regime A and regime B are associated with the small and large values of \({z}_{t}\).

The accommodating transmission of the PE shock on \({\pi }_{t}\) and interest rate via impulse response has been reported in the previous subsection.

The inflationary effects of the PE shock have been reported in the previous subsection.

The identification of demand and supply side recession stands robust by using \({\pi }_{t}\) as well (see Online Appendix).

The plausible approximation error arising from approximating the \(P\left(\text{Low Indgr}_{t}\cap \text{High}\, {\pi }_{t}^{F}\right)\) and \(P\left(\text{Low Indgr}_{t}\cap \text{High}\, {\pi }_{t}^{F}\right)\) with \(P\left(\text{Low Indgr}_{t}\right)\) during non-recessionary times will not bias the paper inferences, as the paper aims to examine the transmission and effectiveness of the PE shock during the recessions originating from supply and demand side factors.

Ghassibe and Zanetti (2022) suggested the use of fiscal stimuli in the form of public expenditure boost and tax cuts which accelerates demand and strengthen supply to combat the crisis engendering from demand and supply side factors, respectively.

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Titel: Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension
verfasst von: Paras Sachdeva
Wasim Ahmad
N. R. Bhanumurthy
Publikationsdatum: 23.06.2023
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 1/2024
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-023-02457-z

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