Hussain and Siddiqi (2013) analyze the cyclicality of government expenditure in six South Asian countries using data from 1980 to 2010. While they find evidence that fiscal policy was procyclical during this period, they find no evidence that the strength or quality of political systems or institutions affected the procyclicality. Similarly, Zakaria and Junyang (2015) study the cyclical properties of fiscal policy in seven South Asian economies and explore possible factors explaining fiscal cyclicality. They find strong procyclicality of government expenditure and argue that limited access to domestic and international borrowing and a wider dispersion of political power are contributing to procyclicality.

The empirical evidence on the size of fiscal multipliers in developing countries is relatively scarce, but it suggests that multipliers are quite small. Using a Panel VAR model and quarterly data for a large set of countries, Ilzetzki, Mendoza and Végh (2012) find that the government spending multiplier in developing countries is insignificant for consumption spending, but 0.6 on impact and 1.6 in the longrun for investment spending. In addition, they show that multipliers tend to be larger in advanced economies, in countries with fixed exchange rates, in more closed economies, and in economies with lower levels of public debt. Huidrom et al. (2016), using an Interactive Panel VAR model, conclude that fiscal multipliers depend on fiscal positions. They find that multipliers tend to be larger when government debt and deficits are low. Using a large sample of developing countries, Kraay (2012, 2014) obtains an average government spending multiplier somewhere between 0.4 and 0.5.

Hayat and Qadeer (2016) estimate fiscal multipliers for Bangladesh, India, Pakistan and Sri Lanka over the period from 1982 to 2014 using a Panel VAR model. They find an initial impact close to 0.4 and a surprisingly large long-run effect. Tax multipliers, on the other hand, are statistically insignificant. Yadav et al. (2012) estimate the impact of fiscal shocks on the Indian economy using quarterly data from 1997 Q1 to 2009 Q2. They argue that unexpected changes in tax revenue have a much larger effect on GDP on impact than unexpected changes in government spending. Jain and Kumar (2013) estimate the size of the expenditure multiplier in India at the center and the state level using annual data for the period from 1980 to 2011. The size of the multiplier for all categories of expenditure by state governments is estimated to be larger than that of the central government. Furthermore, capital spending has a higher multiplier than current spending. Depending on the model specification, the aggregate tax multiplier is found to be between 0.1 to 0.5, which is lower than the expenditure multiplier. Finally, Bose and Bhanumurthy (2015) present a structural macroeconomic model for the estimation of fiscal multipliers in India. Based on annual data from 1991 to 2012, they find a large capital expenditure multiplier of 2.5, a transfer payment and current spending multiplier of 1, and a tax multiplier of -1.

# **3. Data**

The dataset constructed for the analyses in this paper comprises annual data from 1987 to 2017 for the following six South Asian countries: Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka. We rely mostly on the World Development Indicators (WDI) from the World Bank. This is the case for real GDP values in US dollars for all the countries and for the tax revenue measured as percent of GDP for Bhutan, Pakistan, and Sri Lanka. The WDI tax series for Bhutan and Pakistan have some missing values. Since the correlation for overlapping years of the WDI and Asian Development Bank (ADB) series is 4