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The Macroeconomics of the Arab States of the Gulf$
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Raphael Espinoza, Ghada Fayad, and Ananthakrishnan Prasad

Print publication date: 2013

Print ISBN-13: 9780199683796

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199683796.001.0001

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Fiscal Policy for Macroeconomic Stability

Fiscal Policy for Macroeconomic Stability

Chapter:
(p.86) 5 Fiscal Policy for Macroeconomic Stability
Source:
The Macroeconomics of the Arab States of the Gulf
Author(s):

Raphael Espinoza

Ghada Fayad

Ananthakrishnan Prasad

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199683796.003.0005

Given the peg to the U.S. dollar, fiscal policy is the main tool for macroeconomic stabilization in the GCC. However, fiscal multipliers could be weak in the region given the substantial leakages through remittances and imports. The chapter estimates using panel and VAR models that the short-term fiscal multipliers are between 0.2 and 0.4. The long-term fiscal multipliers would be larger, especially for capital expenditure. Fiscal policy is often pro-cyclical in oil exporting countries, but the VARs suggest that policy would have been counter-cyclical in Saudi Arabia and Oman. Overall, shocks to government spending would have contributed for 20 to 30 percent to the variance of non-oil GDP growth.

Keywords:   gulf cooperation council, government spending, fiscal policy, fiscal multipliers, volatility and growth

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