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Fiscal policy responsiveness, persistence and discretion

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  • Afonso, António
  • Agnello, Luca
  • Furceri, Davide

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 0954.

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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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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
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