Fiscal Multipliers in Mongolia

Fiscal policy plays an important macroeconomic role in Mongolia. On the one hand, fiscal expansion is seen as a measure to boost aggregate demand. On the other hand, import leakages mitigate the impact of fiscal expansion on growth. Applying a structural vector autoregressive model, this paper finds that Mongolia’s total spending and revenue multipliers are below 1, peaking at 0.3 and -0.1, respectively. The lower than 1 multiplier can be explained by import leakages in Mongolia. Capital spending multiplier peaks at 0.6, exceeds and remains more persistent than the current spending multiplier, suggesting that public investment is more efficient in boosting growth than current spending. Tax revenue and non-tax revenue multipliers peak at -0.1 and -0.2, respectively, and are short-lived. Revenue multipliers are broadly comparable in size, but their assessment is challenging due to lack of sizeable tax policy measures in Mongolia.