Cyclical Bias in Government Spending: Evidence from New EU Member Countries
AbstractThis paper focuses on dynamics of government spending over the business cycle. The literature on this topic has yet mainly focused on the issue of anti- or pro- cyclicality of fiscal policy. Only recently some researchers brought up a notion that response of fiscal policy might display great deal of asymmetry with respect to economic upturns and downturns. This is known as cyclical bias which arises when government expenditure increases more in cyclical downturns than it decreases in cyclical upturns, or vice versa. Empirical estimates of the sign and degree of cyclical bias show strong evidence in favour of the hypothesis that fiscal authorities do react with a great deal of asymmetry. Among other things, the presence of cyclical bias in government spending has been proposed as an explanation or mechanism which lies behind its unprecedented increase in most OECD countries over the last several decades. The aim of this paper is to show that a similar asymmetry of government spending dynamics can also be found in fiscal data of new EU member countries. We estimate the sign and degree of cyclical bias and compare it to estimates from other countries. Finally, we tackle the question of whether there is any statistically significant influence of political economy variables on the estimated degree of asymmetry.
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Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2007/15.
Length: 23 pages
Date of creation: May 2007
Date of revision: May 2007
Cyclical Bias; New EU member states; Fiscal policy;
Find related papers by JEL classification:
- 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
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-26 (All new papers)
- NEP-CBA-2007-05-26 (Central Banking)
- NEP-EEC-2007-05-26 (European Economics)
- NEP-MAC-2007-05-26 (Macroeconomics)
- NEP-PBE-2007-05-26 (Public Economics)
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