Fiscal Policy and Economic Growth: The Case Of The Federation of Bosnia and Herzegovina

Abstract

The purpose of this paper is to explore whether or not fiscal policy can stimulate the economic activity in the Federation of Bosnia and Herzegovina. For this purpose, the time-series data are collected in the period 2008-2014. The results suggest that a unit increase in revenue leads to a reduction in the gross domestic product in the long-run. Budgetary expenditures are found to stimulate gross domestic product only in initial period. However, results in the long-run are found to be negligible. Moreover, impulse-response function indicates there are many other determinants of gross domestic product in the Federation of Bosnia and Herzegovina besides budgetary expenditures. Therefore, the impact of fiscal policy on economic growth is just partial. Hence, development policy based on budgetary expenditures will lead to only small increase in economic output.