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Government Spending Multipliers over the Growth Cycle: What do they tell us in a Developing Economy?

20 April 2016 at 12:00 PM - 1:30 PM

Room 104, Campus on Viale Romania, 32

Speaker: Nuru Naser Yenus, LUISS

Abstract: Developing/emerging market economic cycle tend to be more volatile than developed countries' whilst being more prone to large shocks such as the recent global financial crisis. Since the crisis, affected economies – including South Africa – have endured a downward shift in their long-run growth trajectory. In this regard, fiscal policy could play a central role in dampening economic fluctuations and promoting long-run growth. To this end, South Africa passed a fiscal rescue package of around 1.2 percent of GDP in 2009. The effectiveness of this fiscal package remains, however, an open question. To address this point, we are going to study the asymmetric effects of government spending shocks in this small open economy using a model incorporating nonlinearities into the dynamic relationship between fiscal policy and real economic activity over growth cycle. Additionally, we are also going to investigate how output multipliers for government purchases may alter for different components of government spending.