The Value of Fiscal Multiplier and Economic Characteristics of Countries


This study is a contribution in the technical debate regarding the real effects of fiscal multipliers which occur through government expenditure shocks on other economic variables. The debate is mainly confined around any country’s key characteristics, i.e., exchange rate regime, trade openness, etc. To be more precise, we have tried to predict the actual value of fiscal multipliers by using the dataset of 55 countries categorized according to their economic characteristics around the world. We further divided the set of countries in accordance with their exchange rate (fixed and flexible), while some of them had been classified on their average rate of tariffs. The findings of a panel Vector Auto-Regressive (VAR) technique suggested that in the case of fixed exchange rate, the value of multipliers tend to be more pronounced; specifically, the government expenditure multipliers clearly showing that the results are similar to Mundell-Fleming Model and the Keynesian Synthesis. The multiplier effects of government expenditure have been found to be negative in the case of closed economy as compared to open economy.

Keywords: Fiscal Policy, Monetary Policy, Vector Auto-Regressive.

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