Estimating Conditional Functional Multipliers

Estimating Conditional Functional Multipliers

Spending based fiscal adjustment requires decisions on when? and how much to cut public spending to minimise adveræ effects on economic growth. This requires precise estimates of the response of output to changes in the functional components of pub...

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Bibliographic Details
Main Author: Asea, Patrick K.
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2018
Subjects:
FISCAL MULTIPLIER
ABSORPTIVE CAPACITY
GOVERNMENT SPENDING
SHRINKAGE ESTIMATORS
FISCAL POLICY
ECONOMIC GROWTH
PUBLIC SPENDING
FISCAL ADJUSTMENT
CONTESTABILITY
Online Access:http://documents.worldbank.org/curated/en/945631530886061466/Estimating-conditional-functional-multipliers
http://hdl.handle.net/10986/30264
id okr-10986-30264
recordtype oai_dc
spelling okr-10986-302642021-05-25T09:17:12Z Estimating Conditional Functional Multipliers Asea, Patrick K. FISCAL MULTIPLIER ABSORPTIVE CAPACITY GOVERNMENT SPENDING SHRINKAGE ESTIMATORS FISCAL POLICY ECONOMIC GROWTH PUBLIC SPENDING FISCAL ADJUSTMENT CONTESTABILITY Spending based fiscal adjustment requires decisions on when? and how much to cut public spending to minimise adveræ effects on economic growth. This requires precise estimates of the response of output to changes in the functional components of public spending. I call this the functional multiplier.I disaggregate government spending in 36 low-income countries over the Period 1984-2013 into its functional components. Using a GMM-IV model with fuel subsidies as the instrument for government spending I exploit difference in the length of exposure to statehood as a proxy for current absorptive capacity to estimate functional multipliers conditional on absorptive capacity.The estimated functional multipliers vary from -1.11 for economic ærvices to 1.82 for social protection. I find that a one standard deviation change in absorptive capacity yields a 18 percent larger multiplier compared to the average level of absorptive capacity. A similar exercise for contestability shows that a one standard deviation change in contestability yields a 14 percent larger multiplier compared to the average level of absorptive capacity. I subject the GMM-IV estimates to a rigorous test to determine whether the estimated relationships an causal and not simply spurious correlation. Post-double LASSO estimates show that that the conditional functional multipliers are precisely estimated and of the same order of magnitude (though slightly larger) than the GMM-IV estimates. To obtain multipliers for individual countries (and not averages) I use a Bayesian iterative shrinkage estimators. The shrinkage estimates show that countries with higher than average absorptive capacity have multipliers that are 15 percent larger than thoæ below the average. 2018-08-20T20:03:24Z 2018-08-20T20:03:24Z 2016-11-15 Working Paper http://documents.worldbank.org/curated/en/945631530886061466/Estimating-conditional-functional-multipliers http://hdl.handle.net/10986/30264 English CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research :: Working Paper Publications & Research South Asia Afghanistan
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic FISCAL MULTIPLIER
ABSORPTIVE CAPACITY
GOVERNMENT SPENDING
SHRINKAGE ESTIMATORS
FISCAL POLICY
ECONOMIC GROWTH
PUBLIC SPENDING
FISCAL ADJUSTMENT
CONTESTABILITY
spellingShingle FISCAL MULTIPLIER
ABSORPTIVE CAPACITY
GOVERNMENT SPENDING
SHRINKAGE ESTIMATORS
FISCAL POLICY
ECONOMIC GROWTH
PUBLIC SPENDING
FISCAL ADJUSTMENT
CONTESTABILITY
Asea, Patrick K.
Estimating Conditional Functional Multipliers
geographic_facet South Asia
Afghanistan
description Spending based fiscal adjustment requires decisions on when? and how much to cut public spending to minimise adveræ effects on economic growth. This requires precise estimates of the response of output to changes in the functional components of public spending. I call this the functional multiplier.I disaggregate government spending in 36 low-income countries over the Period 1984-2013 into its functional components. Using a GMM-IV model with fuel subsidies as the instrument for government spending I exploit difference in the length of exposure to statehood as a proxy for current absorptive capacity to estimate functional multipliers conditional on absorptive capacity.The estimated functional multipliers vary from -1.11 for economic ærvices to 1.82 for social protection. I find that a one standard deviation change in absorptive capacity yields a 18 percent larger multiplier compared to the average level of absorptive capacity. A similar exercise for contestability shows that a one standard deviation change in contestability yields a 14 percent larger multiplier compared to the average level of absorptive capacity. I subject the GMM-IV estimates to a rigorous test to determine whether the estimated relationships an causal and not simply spurious correlation. Post-double LASSO estimates show that that the conditional functional multipliers are precisely estimated and of the same order of magnitude (though slightly larger) than the GMM-IV estimates. To obtain multipliers for individual countries (and not averages) I use a Bayesian iterative shrinkage estimators. The shrinkage estimates show that countries with higher than average absorptive capacity have multipliers that are 15 percent larger than thoæ below the average.
format Working Paper
author Asea, Patrick K.
author_facet Asea, Patrick K.
author_sort Asea, Patrick K.
title Estimating Conditional Functional Multipliers
title_short Estimating Conditional Functional Multipliers
title_full Estimating Conditional Functional Multipliers
title_fullStr Estimating Conditional Functional Multipliers
title_full_unstemmed Estimating Conditional Functional Multipliers
title_sort estimating conditional functional multipliers
publisher World Bank, Washington, DC
publishDate 2018
url http://documents.worldbank.org/curated/en/945631530886061466/Estimating-conditional-functional-multipliers
http://hdl.handle.net/10986/30264
_version_ 1764471561424732160

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