The article aims to provide
a new approach to the modelling of fiscal policy effectiveness
in Azerbaijan. It is argued that massive transfer of oil revenues from SOFAZ to state budget after 2008 has sharply declined
the impact of budget
expenditures over non-oil
sector economic performance, so called fiscal policy
effectiveness. Research covers 2000Q1-2018Q1 period. Application of various break point tests to the
period of 2000Q1-2018Q1 presents existence of break-in 2009Q3. Therefore,
periods of 2000Q1- 2009Q3 and 2009Q3-2018Q1 are taken separately to assess long-run
fiscal policy effectiveness in Azerbaijan. Empirical results of various
cointegration methods all together support
the proposed claim
that fiscal policy
effectiveness has decreased significantly in the second period compared to the first.
It is argued that the sharp fall is mostly
due to the use of easy
gained revenues, so called “the curse of transfers”. Results of the study are fairly useful for policy officials to consider while preparing budget proposals under the pressure of
low oil prices.
Citation:
Aliyev, K. (2019). The curse of transfers? Modelling fiscal policy effectiveness in Azerbaijan. ASERC Journal of Socio-Economic Studies, 2(2), 77-87. DOI:10.30546/2663-7251.2.2.77