Akademik Məlumat İdarəetmə Sistemi
37th International Scientific Conference on Economic and Social Development - Socio Economic Problems of Sustainable Development, Baku, Azerbaijan, 14 - 15 February 2019, pp.76-85
The article aims to provide a new approach to the modelling of fiscal policy effectiveness in Azerbaijan. Thanks to its natural resource wealth, the country has enjoyed oil boom period during 2005-2015, accompanied with huge revenues which are accumulated in the State Oil Fund of Azerbaijan Republic (SOFAZ). Government of the country started to inject resource revenues to the national economy through fiscal channels massively after 2008. Large amount of oil revenues is transferred to the state budget from SOFAZ. In this article, it is argued that those transfers sharply declined the impact of budget expenditures over non-oil sector economic performance, so called fiscal policy effectiveness. 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. Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), Canonical Cointegration Regression (CCR), and Autoregressive Distributed Lag Bounds Testing (ARDLBT) cointegration techniques are employed to estimate long-run models in both periods. Empirical results all together supports 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.