Assessing the Impact of Thailand’s Government Consumption and Tax Shocks with a Non-recursive SVAR Model

Abstract

In this paper, we linearly quantify the impact of government consumption and tax shocks on key aggregate variables in Thailand. A simple small-open economy SVAR model is developed and estimated with a Thai dataset covering the periods between 2001Q1 and 2023Q1. Both types of fiscal shocks are identified using a non-recursive scheme with some structural coefficients separately estimated from external information. The resulting over-identified SVAR model suggests that fiscal shocks generate short-lived impact on aggregate output and some selected types of private spending. Under the baseline specification, government consumption and tax multipliers are roughly around 0.9 times and -0.7 times, respectively. The response of private consumption to fiscal shocks closely traces the dynamic response of output, whereas private investment is rather insensitive to fiscal shocks. Our key results remain roughly in line across detrending methods applied to the data, thus providing systematically linear evidence that broad-based fiscal multipliers are, at best, moderate in Thailand.