02279cas a2200265 a 4500 AALejournalIMF016492 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513578972 1018-5941 BD-DhAAL BD-DhAAL Shen, Wenyi. Government Spending Effects in Low-income Countries / Wenyi Shen, Susan Yang, Luis-Felipe Zanna. Washington, D.C. : International Monetary Fund, 2015. 1 online resource (48 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Despite the voluminous literature on fiscal policy, very few papers focus on low-income countries (LICs). This paper develops a new-Keynesian small open economy model to show, analytically and through simulations, that some of the prevalent features of LICs-different types of financing including aid, the marginal efficiency of public investment, and the degree of home bias-play a key role in determining the effects of fiscal policy and related multipliers in these countries. External financing like aid increases the resource envelope of the economy, mitigating the private sector crowding out effects of government spending and pushing up the output multiplier. The same external financing, however, tends to appreciate the real exchange rate and as a result, traded output can respond quite negatively, reducing the overall output multiplier. Although capital scarcity implies high returns to public capital in LICs, declines in public investment efficiency can substantially dampen the output multiplier. Since LICs often import substantial amounts of goods, public investment may not be as effective in stimulating domestic production in the short run. Mode of access: Internet Yang, Susan. Zanna, Luis-Felipe. IMF Working Papers; Working Paper ; No. 2015/286 Full text available on IMF http://elibrary.imf.org/view/journals/001/2015/286/001.2015.issue-286-en.xml IMF e-Library