Cyclicality of Fiscal Policy over the Business Cycle: an Empirical Study on Developed and Developing Countries
AbstractThis paper presents strong empirical evidence that automatic stabilizers and countercyclical fiscal policy decrease output volatility. The conducted empirical analysis proves the economic intuition that the automatic fiscal stance is countercyclical, regardless of the size and the prosperity of the economy. Connecting our empirical results to the Endogenous Growth Theory, we develop the idea that countercyclical fiscal policy boosts long-term economic growth. We conduct the study on two samples of countries – developed and developing. We recognize the fiscal policy pattern of the developed nations to be countercyclical, whereas the one of the developing countries to be acyclical. The derived results support our hypothesis that countercyclical fiscal policy reduces output volatility as the volatility of per capita output of the developed nations appear significantly less than the one of the developing countries. We identify possible determinants of fiscal policy in good and bad times. We empirically recognize that openness to trade, terms of trade, level of corruption and financial development affect fiscal policy in both samples of 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 Agency for Economic Analysis and Forecasting in its series Working paper series with number 12010en.
Length: 54 pages
Date of creation: 2010
Date of revision:
fiscal policy; automatic stabilizers; discretionary policy; output volatility; determinants;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- 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:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Anita Angelovska Bezovska & Jane Bogoev & Ana Mitreska & Maja Kadievska Vojnovik, 2011. "Investigating the Cyclical Behavior of Fiscal Policy in the Republic of Macedonia during the Period of Transition," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 13(1), pages 57-104, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kiril Vassilev).
If references are entirely missing, you can add them using this form.