Abstract
While fiscal policy has been operated counter-cyclically in most of the developed
countries (DCs), the reverse trend has been found in most of the low income developing countries
(LDCs). This conclusion has been drawn in the literature during the past decades based on the
correlation between fiscal and business cycle indicators. This phenomenon of LDCs is more pronounced during recessions due to the limitations in the credit markets as well as other social -
political distortions. This paper is the first effort to introduce an empirical investigation on the
cyclical behavior of fiscal instruments in Vietnam using Autoregressive Distributed Lag (ARDL)
model. Fiscal balance is used as an indicator of fiscal instruments while business cycle is revealed
via real GDP growth rate. In ARDL model, apart from the short-run effects, the long-run relationship between real GDP growth rate, public debt, net inflows of foreign direct investment, and
fiscal balance is settled. Though the findings of cyclicality are inconclusive in the specification, it is
suggested to pay more attention to pro-cyclicality and Vietnamese government should implement
a counter-cyclical fiscal policy so as to regulate the economy much better.
Hien Nguyen Thi Kim. (2016) Navigating Cyclicality of Fiscal Policy in Vietnam : An Empirical Investigation, Journal of Management Sciences, Volume 3, Issue 2.
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