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Investigating the Cyclical Behavior of Fiscal Policy in the Republic of Macedonia during the Period of Transition

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Author Info

  • Anita Angelovska Bezovska

    ()
    (National Bank of the Republic of Macedonia, FYR Macedonia)

  • Jane Bogoev

    ()
    (National Bank of the Republic of Macedonia, FYR Macedonia)

  • Ana Mitreska

    ()
    (National Bank of the Republic of Macedonia, FYR Macedonia)

  • Maja Kadievska Vojnovik

    ()
    (National Bank of the Republic of Macedonia, FYR Macedonia)

Abstract

The main aim of this research is to investigate the cyclical behavior of fiscal policy with respect to output gap fluctuations in the Republic of Macedonia during the period 1991-2009. We use two different fiscal policy measures: 1) the cyclically unadjusted primary budget balance and 2) the cyclically adjusted primary budget balance as a proxy indicator of the fiscal policy stance. This analysis also aims to explore whether there was a substantial change in the fiscal policy behavior prior to 1996 due to the turbulent initial period of transition and the switch in monetary policy strategy. We additionally control for other factors that also seem to have had a significant impact over the fiscal policy behavior, such as the armed conflict in 2001 and the impact of public debt as a proxy indicator of budget financing constraints. The estimated results with respect to both measures, the cyclically unadjusted and cyclically adjusted budget balance, indicate differences in the fiscal policy behavior prior to and after 1996. More precisely, the results imply that the fiscal policy behavior prior to 1996 was procyclical, whereas afterwards the fiscal policy became countercyclical. These results are robust to different measures of the output gap and different frequency of the data sets.

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Bibliographic Info

Article provided by The Institute of Economics, Zagreb in its journal Croatian Economic Survey.

Volume (Year): 13 (2011)
Issue (Month): 1 (April)
Pages: 57-104

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Handle: RePEc:iez:survey:ces-v13_04-2011_angelovska-bezovska-bogoev-mitreska-kadievska-vojnovik

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Keywords: fiscal policy; cyclically adjusted balance; output gap; monetary policy change;

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References

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  1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
  2. Hall, Alastair R., 2004. "Generalized Method of Moments," OUP Catalogue, Oxford University Press, number 9780198775201.
  3. Badinger, Harald, 2010. "Output volatility and economic growth," Economics Letters, Elsevier, vol. 106(1), pages 15-18, January.
  4. Mackiewicz, Michał, 2008. "Determinants of Cyclicality of Fiscal Surpluses in The OECD Countries," MPRA Paper 16034, University Library of Munich, Germany.
  5. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
  6. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
  7. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
  8. Gábor P. Kiss & Zoltán Reppa, 2010. "Quo vadis, deficit? How high the tax level will be when the economic cycle reverses?," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), vol. 5(3), pages 47-56, October.
  9. Bogdan Bogdanov, 2010. "Cyclicality of Fiscal Policy over the Business Cycle: an Empirical Study on Developed and Developing Countries," Working paper series 12010en, Agency for Economic Analysis and Forecasting.
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