Munich Personal RePEc Archive

Fiscal Policy and Macroeconomic Stability in South Asian Countries

Riaz, Nimra and Munir, Kashif (2016): Fiscal Policy and Macroeconomic Stability in South Asian Countries.

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Abstract

The objective of this study is to examine relationship between fiscal policy and macroeconomic stability in South Asian countries. The study also aimed to find the channels through which fiscal policy leads to macroeconomic stability i.e. automatic stabilizers, discretionary fiscal policy and cyclical fiscal policy. For attaining these objectives the study used data from 1990 to 2014. The study used Pooled OLS and Instrumental Variable Least Square methodology. Results indicate that automatic stabilizers and discretionary fiscal policy have destabilizing impact on economy which leads to decrease in economic growth of developing economies. Cyclical policy plays an important role in stabilizing the economy and growth of a country. The study concluded that automatic stabilizers and discretionary policy are weak in developing economies. Government should use cyclical policy for macroeconomic stability in developing countries.

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