A VAR analysis of the expenditures-side effects of passive fiscal policy in Poland in 2004-2012

In this paper the methodology to assess the effectiveness of automatic stabilizers is applied to Polish quarterly data for 2004-2012. The methodology is based on the separation of permanent from cyclical components of public expenditures and estimation the effect of stabilizers in private consumption and output. In European Monetary Union, without the possibility of monetary policy, passive fiscal policy is the only instrument that the authorities are able to use to dampen the effects of business cycle at national level. The paper presents the analysis of the effectiveness of fiscal policy in Poland based on the structural VAR approach. The analysis show a positive response of industrial production and private consumption to expenditure shocks. It is worth underlying that reaction of industrial production to cyclical component of government expenses is more significant that the reaction of private consumption. In both cases both variables response to public spending is immediate and it takes place in first quarter. (original abstract)