Advanced Search
MyIDEAS: Login

Fiscal Policy and Macroeconomic Stability: New Evidence and Policy Implications

Contents:

Author Info

  • Xavier Debrun

    ()
    (International Monetary Fund)

  • Radhicka Kapoor

    (London School of Economics)

Abstract

The paper revisits the empirical link between fiscal policy and macroeconomic stability. Our basic presumption is that by definition, the operation of automatic stabilizers should always and everywhere contribute to greater macroeconomic stability (output and consumption). However, two stylized facts seem at odds with that prediction. First, the moderating effect of automatic stabilizers appears to have weakened in advanced economies between the mid-1990s and 2006 (the end of our main sample). Second, automatic stabilizers do not seem to be effective in developing economies. Our analysis addresses these apparent puzzles by accounting for the government’s ambivalent role as a shock absorber and a shock inducer for determinants of macroeconomic volatility over time. Results provide strong support for the view that fiscal stabilization operates mainly through automatic stabilizers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ief.eco.unc.edu.ar/files/publicaciones/economiayestadistica/2010_48_n2/03_2010n2_DebrunKapoor.pdf
Download Restriction: no

Bibliographic Info

Article provided by Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas in its journal Revista de Economía y Estadística.

Volume (Year): XLVIII (2010)
Issue (Month): 2 (July)
Pages: 69–101

as in new window
Handle: RePEc:ief:reveye:v:48:y:2010:i:2:p:69-101

Contact details of provider:
Postal: Av. Valparaíso s/n - Ciudad Universitaria - (5000) - Córdoba
Phone: 54 0351 4437300 int 253
Fax: 54 351 433 4436
Email:
Web page: http://ief.eco.unc.edu.ar/
More information through EDIRC

Related research

Keywords: Economic stabilization; Fiscal policy; Fiscal stability.;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bennett Sutton & Luis Catão, 2002. "Sovereign Defaults: The Role of Volatility," IMF Working Papers 02/149, International Monetary Fund.
  2. Alberto Alesina & Guido Tabellini, 2005. "Why Is Fiscal Policy Often Procyclical?," Working Papers 297, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Jean Pisani-Ferry & Xavier Debrun & André Sapir, 2008. "Government Size and Output Volatility: Should We Forsake Automatic Stabilization?," IMF Working Papers 08/122, International Monetary Fund.
  4. Steven A. Symansky & Thomas Baunsgaard, 2009. "Automatic Fiscal Stabilizers," IMF Staff Position Notes 2009/23, International Monetary Fund.
  5. António Afonso & Luca Agnello & Davide Furceri, 2008. "Fiscal Policy Responiveness, Persistence and Discretion," Working Papers Department of Economics 2008/50, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. Beetsma, Roel & Debrun, Xavier & Klaassen, Franc, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CEPR Discussion Papers 3035, C.E.P.R. Discussion Papers.
  7. Helge Berger & Ulrich Woitek, 2005. "Does Conservatism Matter? A Time-Series Approach to Central Bank Behaviour," Economic Journal, Royal Economic Society, vol. 115(505), pages 745-766, 07.
  8. Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 0077, European Central Bank.
  9. Christopher W. Crowe & Ellen E. Meade, 2008. "Central Bank Independence and Transparency: Evolution and Effectiveness," IMF Working Papers 08/119, International Monetary Fund.
  10. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  11. Andrés, Javier & Doménech, Rafael & Fatás, Antonio, 2004. "The Stabilizing Role of Government Size," CEPR Discussion Papers 4384, C.E.P.R. Discussion Papers.
  12. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Automatic Stabilizers and Economic Crisis: US vs. Europe," Cologne Graduate School Working Paper Series 01-02, Cologne Graduate School in Management, Economics and Social Sciences.
  13. Antonio Fatás & Ilian Mihov, 2010. "The Euro and Fiscal Policy," NBER Chapters, in: Europe and the Euro, pages 287-324 National Bureau of Economic Research, Inc.
  14. Alberto Alesina, 2000. "The Political Economy of the Budget Surplus in the United States," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 3-19, Summer.
  15. Julia Darby & Jacques Melitz, 2008. "Social spending and automatic stabilizers in the OECD," Economic Policy, CEPR & CES & MSH, vol. 23, pages 715-756, October.
  16. Dirk Muir & Douglas Laxton & Dennis P. J. Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
  17. Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability:Automatic Stabilizers Work, Always and Everywhere," IMF Working Papers 10/111, International Monetary Fund.
  18. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  19. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ief:reveye:v:48:y:2010:i:2:p:69-101. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcelo Coser).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.