Original scientific paper
https://doi.org/10.1080/1331677X.2017.1340181
The effects of fiscal policy during the financial crises in transition and emerging countries: does fiscal policy matter?
Bensik Fetai
orcid.org/0000-0002-6321-0246
; Faculty of Business and Economics, South East European University, Tetovo, Macedonia
Abstract
The article investigates empirically the effect of fiscal policy using 101
episodes of banking crisis in transition and emerging countries during
the period 1980 to 2013. The research question is whether the timely
undertaking of fiscal policy measures would have shortened the
length of the financial crisis? Based on data from Leaven and Valencia
(2012), we employ OLS with robust standard error and ordered logit
model in order to examine the countercyclical effect of fiscal policy
during the systematic banking crisis. We find out that countercyclical
fiscal policy measures have a positive effect in shortening the length
of the financial crisis. The results suggest that fiscal expansion can
shorten the length of the financial crisis by nine months in those
countries. The countercyclical fiscal measures of income tax cuts are
more effective than government consumption in shortening the
duration of the crisis. In addition, the results show the effect of income
tax cuts become weaker or lose their effect after the output recovery,
i.e., after the crisis. Thus, it holds that public investments have the
strongest positive effects on economic growth in the medium term
and decomposition of fiscal policy matters.
Keywords
Fiscal policy; financial crisis; quantitative analysis
Hrčak ID:
193197
URI
Publication date:
1.12.2017.
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