The Efficiency of Fiscal Consolidation Under Structural Shocks: An Empirical Analysis of Ukraine

Abstract

The article examines the efficiency of fiscal stimulus in Ukraine under structural shocks during 2018–2026. The relevance of the study is determined by the fact that, in periods of severe macroeconomic instability, actual budget indicators do not provide a sufficient basis for assessing the true stance of fiscal policy. An increase in the budget deficit or a decline in tax revenues may reflect not only discretionary government decisions, but also the automatic response of public finances to output fluctuations, changes in the tax base, wartime distortions, and external financing constraints. The aim of the article is to identify Ukraine’s structural fiscal impulse and assess its impact on real GDP dynamics.The methodological framework combines several econometric approaches. The output gap is estimated using statistical filtering techniques, including the Hodrick-Prescott filterandthe Hamilton filter. ARDL and DOLS models are applied to estimate long-run tax elasticities and to assess the sensitivity of budget revenues to macroeconomic dynamics. These estimates are then used to construct the cyclically adjusted fiscal position and to derive the structural fiscal impulse. The dynamic effects of fiscal impulse on economic activity are evaluated using a structural vector autoregression model and the local projections method. The results show that Ukraine’s fiscal policy during 2018-2026 was predominantly reactive rather than systematically countercyclical. Fiscal expansion generated a positive short-term response of economic activity, but this effect quickly weakened and did not translate into sustained output growth. The findings indicate that the fiscal multiplier in Ukraine is constrained by high import dependence, exchange rate and monetary restrictions, rising debt pressure, wartime risks, and limited domestic production capacity. A particularly important channel is the import leakage of fiscal stimulus, whereby part of the additional demand generated by public spending is redirected toward foreign goods and services rather than domestic output. The article substantiates that, in Ukraine’s case, fiscal expansion can serve as an emergency stabilization tool, but it cannot ensure long-term growth unless it is accompanied by a structural reorientation of public spending toward domestic value added,investmentpotential, and fiscal sustainability.