Government Spending Cyclicality: Evidence from Rainfall Shocks as an Instrument for Cyclical Income
AbstractThis research revisits the cyclicality of fiscal policies. To identify and estimate more precisely the magnitude of a causal effect of cyclical income on government spending, we employ annual rainfall data as an instrument for national income in the context of sub-Saharan countries. Our results confirm procyclical behavior of government spending and of tax revenues; debt and deficit are found to be countercyclical. Specifically, government spending is procyclical during upturns and acyclical during downturns. We also find that its procyclicality is correlated with corruption, especially among democracies.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8622.
Date of creation: Oct 2011
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Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
- NEP-MAC-2011-11-01 (Macroeconomics)
- NEP-PBE-2011-11-01 (Public Economics)
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