Effects of fiscal consolidation on exports in Ukraine

Vdovychenko, Artem and Zubrytskyi, Artur (2016): Effects of fiscal consolidation on exports in Ukraine.

Abstract

The question of Ukraine's economic recovery after several years of rapid decline is closely connected to the reform of its fiscal policy. Because Ukraine is a country with a small, open economy, exports may be one of the drivers of economic recovery. Monetary policy over the past decades had, for various reasons, a limited impact on the dynamics of exports, while today, a long period of unsustainable fiscal policy forces the government to carry out fiscal consolidation. Adding together all these facts, we can state the importance of studying the influence of fiscal balance parameters on the exports of Ukraine. Using the gravity model, we conclude that fiscal consolidation has a positive effect on Ukraine's exports with a lag of several years. We also find that the effect of fiscal consolidation on exports is mainly due to the correction of the exchange rate. The stimulating effect of fiscal consolidation takes place on an intensive margin of exports; exposing serious structural problems in the Ukrainian economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: structural budget balance, exports, gravity model, fixed effects, random effects, fiscal consolidation, monetary policy, and exchange rate.
• Subjects: F - International Economics > F1 - Trade > F10 - General; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus

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