| This study analyzes the effects of government fiscal policy shocks on macroeconomic performance, the existence of political business cycles (PBC), and the effects of governmental regime change on macroeconomic performance in Thailand. I conduct an empirical investigation of the existence of political business cycles, both partisan and opportunistic, explain the differences in macroeconomic performance between democratically elected and semi-military administrations, and investigate how negative and positive fiscal policy shocks affect Thai macroeconomic performance. By focusing on government expenditures in four categories (social programs, economic programs, defense programs, and administration) and using Seemingly Unrelated Regression (SUR), I am able to estimate the magnitude of fiscal policy shocks on inflation and GDP growth. I find that fiscal policy shocks do not have a long-term impact on GDP growth and inflation, although, they tend to affect the economy in the short-run. There is evidence that incumbent governments attempt to manipulate the economy to increase their chance of winning re-election, especially during democratic administrations, which are more willing to use fiscal policy than are semi-military administrations. |
