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International Letters of Social and Humanistic Sciences
Volume 41

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The Effect of Fiscal Shock on Inflation and Economic Growth in Developing Countries

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This paper examines the effect of fiscal policy on economic growth and inflation by using government expenditure and taxes. For this purpose, selected data from developing countries is used for the period 1990-2011. PVAR approach has been applied to study the effect of shocks on macro variables. The results of impulse response function and variance decomposition implies that economic growth will increase through government expenditure shock in short term, but in long term it is the opposite. The government expenditure shock decrease inflation. Shock of taxes, in short run, promotes slightly economic growth and in long term have no effect on growth. Moreover, at the beginning of the period, inflation is reduced following total tax shocks, but it slightly is increased in subsequent periods.


International Letters of Social and Humanistic Sciences (Volume 41)
M. Mehrara et al., "The Effect of Fiscal Shock on Inflation and Economic Growth in Developing Countries", International Letters of Social and Humanistic Sciences, Vol. 41, pp. 184-191, 2014
Online since:
September 2014

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