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The determinants of public deficit volatility

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Author Info
Luca Agnello () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Ricardo M. Sousa () (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal.)

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Abstract

This paper empirically analyzes the political, institutional and economic sources of public deficit volatility. Using the system-GMM estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper-inflation episodes and for countries with a high degree of openness. JEL Classification: E31, E63.

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Paper provided by European Central Bank in its series Working Paper Series with number 1042.

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Length: 24 pages
Date of creation: Apr 2009
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Handle: RePEc:ecb:ecbwps:20091042

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Keywords: Public deficit; volatility; political instability; institutions.;

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