Business Cycles and Fiscal Policies: the Role of Institutions and financial Markets
AbstractMacroeconomic policies are designed to stabilize business cycle fluctuations. Usually, fiscal and monetary policies in industrial countries have been expansionary in response to weak domestic conditions. However, the cyclical properties of fiscal policies are a much more disputed issue among emerging market economies. Several researchers have attributed these differences in cyclical behavior to: (a) factors associated to a weak institutional framework that play a key role in explaining sub-optimal policy decisions, and (b) factors associated to weak integration (or access) to either domestic or international financial markets. The goal of the present paper is to empirically evaluate whether the ability of countries to conduct countercyclical fiscal policy is affected by the quality of their institutions and/or by the availability of financial resources either in domestic or international capital markets. Our empirical evaluation yields a more nuanced interpretation to the existing evidence: (1) countries are unable to conduct counter-cyclical fiscal policies if they have poor institutions or lack wide access to credit markets at home and abroad, and (2) institutional factors have a larger weight than financial variables in explaining the differences in cyclical behavior of fiscal policy between industrial and developing countries.
Download InfoIf 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.
Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 481.
Date of creation: Aug 2008
Date of revision:
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.:
- Alberto Alesina & Guido Tabellini, 2005.
"Why is fiscal policy often procyclical?,"
784828000000000465, UCLA Department of Economics.
- Alberto Alesina & Guido Tabellini, 2005. "Why is Fiscal Policy Often Procyclical?," NBER Working Papers 11600, National Bureau of Economic Research, Inc.
- Alberto Alesina & Guido Tabellini, 2005. "Why is fiscal policy often procyclical?," Harvard Institute of Economic Research Working Papers 2090, Harvard - Institute of Economic Research.
- Alberto Alesina & Guido Tabellini, 2005. "Why Is Fiscal Policy Often Procyclical?," Working Papers 297, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Alberto Alesina & Guido Tabellini, 2005. "Why is Fiscal Policy often Procyclical?," CESifo Working Paper Series 1556, CESifo Group Munich.
- Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
- Chari, V.V. & Kehoe, Patrick J., 1999.
"Optimal fiscal and monetary policy,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745
- César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel, 2004. "Institutions and Cyclical Properties of Macroeconomic Policies," Working Papers Central Bank of Chile 285, Central Bank of Chile.
- Ricardo J. Caballero & Arvind Krishnamurthy, 2004. "Fiscal Policy and Financial Depth," NBER Working Papers 10532, National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel, 2011.
"Over-optimism in Forecasts by Official Budget Agencies and Its Implications,"
NBER Working Papers
17239, National Bureau of Economic Research, Inc.
- Jeffrey Frankel, 2011. "Over-optimism in forecasts by official budget agencies and its implications," Oxford Review of Economic Policy, Oxford University Press, vol. 27(4), pages 536-562.
- Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2012.
"On Graduation from Fiscal Procyclicality,"
Working Paper Series
rwp12-011, Harvard University, John F. Kennedy School of Government.
- Jeffrey Frankel, 2011.
"A Solution to Fiscal Procyclicality: the Structural Budget Institutions Pioneered by Chile,"
Working Papers Central Bank of Chile
604, Central Bank of Chile.
- Jeffrey Frankel, 2011. "A Solution to Fiscal Procyclicality: the Structural Budget Institutions Pioneered by Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 14(2), pages 39-78, August.
- Jeffrey A. Frankel, 2011. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," NBER Working Papers 16945, National Bureau of Economic Research, Inc.
- Vulentin, Guillermo & Vegh, Carlos A & Frankel, Jeffrey A., 2012. "On Graduation from Fiscal Procyclicality," Scholarly Articles 8694931, Harvard Kennedy School of Government.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).
If references are entirely missing, you can add them using this form.