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Fiscal Multipliers in Ukraine
Author: Ms. Pritha Mitra and Mr. Tigran Poghosyan
Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 071
Language:
English
Publication Date:
27 Mar 2015
DOI:
https://doi.org/10.5089/9781484305898.001
ISBN:
9781484305898
ISSN:
1018-5941
Pages:
17
Keywords:
WP; multiplier; revenue multiplier; spending multiplier; Fiscal consolidation; fiscal multipliers; structural VAR; multiplier estimate; impact multiplier; revenue policy; Current spending; Capital spending; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Amid renewed crisis, falling tax revenues, and rising debt, Ukraine faces serious fiscal consolidation needs. Durable fiscal adjustment can support economic confidence and rebuild buffers but what is its overall impact on growth? How effective are revenue versus spending instruments? Does current or capital spending have a larger impact? Applying a structural vector autoregressive model, this paper finds that Ukraine’s near-term revenue and spending multipliers are well below one. In the medium-term, the revenue multiplier becomes insignificant (with a wide confidence interval) and the spending multiplier strengthens. Capital and current spending have a similar effect on growth but the capital multiplier remains significant for longer. These results suggest near-term consolidation based on a combination of revenue and spending measures would have a modest impact on growth. At the same time, medium-term policies could minimize the adverse consequences of consolidation on growth by offsetting some current spending cuts with increased capital spending. Given the severe challenges facing the Ukrainian economy, it is important that policymakers apply these results in conjunction with broader considerations such as public debt sustainability, investor confidence, credibility of government policies, and public spending efficiency. Consequently, it may be necessary to rely more on current spending cuts over other types of consolidation measures even though multiplier estimates suggest a more diverse combination of measures.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund