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Fiscal policy responsiveness, persistence and discretion

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Abstract

We decompose fiscal policy in three components: i) responsiveness, ii) persistence and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more persistent than to respond to output conditions. We also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence thereby suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence. JEL Classification: E62, H50.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 954.

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Length: 45 pages
Date of creation: Oct 2008
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Handle: RePEc:ecb:ecbwps:20080954

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Keywords: Fiscal Policy; Fiscal Volatility.;

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Citations

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Cited by:
  1. Davide, Furceri & Aleksandra, Zdzienicka, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," MPRA Paper 22078, University Library of Munich, Germany.
  2. Luca Agnello & Gilles Dufrénot & Ricardo M. Sousa, 2012. "Adjusting the U.S. Fiscal Policy for Asset Prices: Evidence from a TVP-MS Framework," NIPE Working Papers 20/2012, NIPE - Universidade do Minho.
  3. António Afonso & Luca Agnello & Davide Furceri & Ricardo M. Sousa, 2009. "Assessing Long-Term Fiscal Developments: a New Approach," NIPE Working Papers 7/2009, NIPE - Universidade do Minho.
  4. RISCADO, Sara Maria de Almeida Duarte Lopes, 2012. "Moment Condition Models in Empirical Economics," Open Access publications from European University Institute urn:hdl:1814/22454, European University Institute.
  5. Luca Agnello & Jacopo Cimadomo, 2012. "Discretionary Fiscal Policies over the Cycle: New Evidence Based on the ESCB Disaggregated Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 43-85, June.
  6. Luca Agnello & Ricardo M. Sousa, 2009. "The Determinants of Public Deficit Volatility," NIPE Working Papers 11/2009, NIPE - Universidade do Minho.
  7. Antonio Afonso & Ricardo Sousa, 2011. "Assessing long-term fiscal developments: evidence from Portugal," Applied Economics Letters, Taylor and Francis Journals, vol. 18(1), pages 1-5.
  8. Bruno Albuquerque, 2010. "Fiscal Institutions and Public Spending Volatility in Europe," Working Papers w201017, Banco de Portugal, Economics and Research Department.
  9. Paloviita, Maritta, 2012. "Real time uncertainty in fiscal planning and debt accumulation in the euro area," Research Discussion Papers 35/2012, Bank of Finland.
  10. Davide, Furceri & Aleksandra, Zdzienicka, 2011. "The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries," MPRA Paper 30356, University Library of Munich, Germany.
  11. Robert Ambrisko & Vitezslav Augusta & Dana Hajkova & Petr Kral & Pavla Netusilova & Milan Rikovsky & Pavel Soukup, 2012. "Fiscal Discretion in the Czech Republic in 2001-2011: Has It Been Stabilizing?," Research and Policy Notes 2012/01, Czech National Bank, Research Department.
  12. Ernesto Crivelli, 2012. "Local Governments' Fiscal Balance, Privatization, and Banking Sector Reform in Transition Countries," IMF Working Papers 12/146, International Monetary Fund.
  13. Paloviita, Maritta, 2012. "Fiscal planning and implementation: euro area analysis based on real time data," Research Discussion Papers 34/2012, Bank of Finland.

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