Empirical Estimation of Fiscal Policy Effects on Russian Business Cycle

This paper examines the fiscal policy of the Russian Federation, its essence, types, aims and objectives and estimates the impact of its instruments, government spending and taxes, on economic growth. The GDP of Russia was chosen as a dependent variable as the main indicator of the level of economic development of the country. The empirical analysis is implemented by using the vector error correction modeling (VECM). Estimation of parameters conducts in two stages: the first stage is a simple two-step model (S2S) and the second is the generalized least squares method (GLS). This model was chosen as a methodology because it allows to set limitations on the parameters. After empirical analysis, impulse response functions were obtained as a result. Reaction function of GDP on public expenditure was significant for this model. The multiplier of public expenditure in this case was 1.641. The relationship between taxes and GDP is insignificant for this study. The results obtained proved the effectiveness of the methods of fiscal policy and with the proper implementation of it the level of GDP will reach higher values and consequently economic growth will experience.