The Effects of Government Spending Shocks: Evidence from Tunisia

This book performs a Structural Vector Auto Regression analysis on the Tunisian economy using quarterly interpolated data from 1990 to 2015 in the attempt of verifying and quantifying the short-term macroeconomic effects of public spending on private consumption. Our findings suggest that positive government spending shock has a positive but low impact on private consumption, while it has a crowding-out effect on GDP. We also find, surprisingly, that an increase in capital spending has a crowding-out effect on private consumption, while an increase in current spending has a crowding-in effect. A positive government revenue shock tends to have a positive impact on private consumption, while it has no impact on GDP in the short-term. Overall, an expansionary fiscal policy is not an effective tool to stimulate the Tunisian economic activity.