THE MACROECONOMIC EFFECTS OF BUDGET SPENDING IN AZERBAIJANS ECONOMY

Ilkin ASLANOV


Ilkin Aslanov, Ph.D. Candidate at the Chair of State Economic Regulation, the Academy of Public Administration under the President of the Republic of Azerbaijan (Baku, Azerbaijan)


ABSTRACT

This article analyzes the changes in the amount and structure of budget spending in Azerbaijans economy in 2000-2013. It assesses the impact of budget spending on the dynamics of the economys non-oil sector, personal income, employment, poverty, inflation, import, and human development indicators. On the basis of the calculations carried out, it establishes that even if the multiplier of hypothetic spending in the countrys economy is equal to 2.6, the multiplication effect of budget spending amounts to 1.4 in the non-oil sector and 1.8 in personal income, respectively. In addition, a 1% increase in budget spending in real terms leads to a real increase of 0.47% in the non-oil sector and of 0.56% in personal income. Every billion manats of budget spending creates 28,000 new jobs and releases approximately 190-200,000 people from the grips of poverty. At the same time, an abrupt increase in budget spending will stoke inflation and cause an increase in import: a rise in budget spending by 10% increases inflation by 2.1% and import volume by 6.1%.

Keywords: budget spending, non-oil sector, inflation, employment, Azerbaijan.

Introduction

In the current debates relating to fiscal policy for developing countries, experts think that a tight fiscal policy is required. According to the prevailing opinion, a budget deficit should be avoided because it crowds out private investments and is inflationary. On the other hand, it is an effective tool for stimulating an economy facing an economic slowdown when the standard Keynesian models of economic and fiscal policy are at hand.

Of course, the economic role of fiscal policy, particularly of one of its most important elementsbudget spending, is not limited to this. State budget spending could play an important role in ensuring the production of social benefits, protecting economic stability, fighting the crisis, and.


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