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The determinants of public deficit volatility

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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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Bibliographic Info

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
Date of revision:
Handle: RePEc:ecb:ecbwps:20091042

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

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Citations

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Cited by:
  1. Mara, Eugenia-Ramona, 2012. "Determinants of fiscal budget volatility in old versus new EU member states," MPRA Paper 42555, University Library of Munich, Germany.
  2. Emilia Câmpeanu & Andreea Stoian, 2010. "Fiscal Policy Reaction in the Short Term for Assessing Fiscal Sustainability in the Long Runin Central and Eastern European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 501-518, December.
  3. Luca Agnello & Ricardo M. Sousa, 2011. "Fiscal Consolidation and Income Inequality," NIPE Working Papers 34/2011, NIPE - Universidade do Minho.

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