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De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment

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  • Aizenman, Joshua
  • Jinjarak, Yothin

Abstract

We define the notion of a ‘de facto fiscal space’ of a country as the inverse of the tax-years itwould take to repay the public debt. Specifically, we measure the outstanding public debtrelative to the de facto tax base, where the latter measures the realized tax collection, averagedacross several years to smooth for business cycle fluctuations. We apply this concept to accountfor the cross-country variation in the fiscal stimulus associated with the global crisis of 2009-2010. We find that greater de facto fiscal space prior to the global crisis, higher GDP/capita,higher financial exposure to the US, and lower trade openness were associated with a higherfiscal stimulus/GDP during 2009-2010. Joint estimation indicates that higher trade openness wasassociated with lower fiscal stimulus and higher depreciation rate during 2009-2010.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt6dn0n13t.

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Date of creation: 01 Dec 2010
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Handle: RePEc:cdl:ucscec:qt6dn0n13t

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Keywords: Social and Behavioral Sciences; Fiscal space; fiscal stimulus; trade openness;

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References

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  1. Joshua Aizenman & Yothin Jinjarak, 2006. "Globalization and Developing Countries - A Shrinking Tax Base?," NBER Working Papers 11933, National Bureau of Economic Research, Inc.
  2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  3. Joshua Aizenman & Yothin Jinjarak, 2010. "De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment," NBER Working Papers 16539, National Bureau of Economic Research, Inc.
  4. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "Fiscal fragility: what the past may say about the future," Santa Cruz Department of Economics, Working Paper Series qt7mf244m2, Department of Economics, UC Santa Cruz.
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Cited by:
  1. Joshua Aizenman & Yothin Jinjarak, 2010. "De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment," NBER Working Papers 16539, National Bureau of Economic Research, Inc.

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