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Fiscal policy and regional output volatility: Evidence from Russia

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Author Info

  • Eller, Markus

    ()
    (BOFIT)

  • Fidrmuc, Jarko

    ()
    (BOFIT)

  • Fungácová , Zuzana

    ()
    (BOFIT)

Abstract

This paper investigates the relationship between fiscal policy and output volatility in Russian regions between 2000 and 2009. System GMM estimation techniques are used to account for potential endogeneity between output volatility and fiscal developments. Our main finding is that fiscal activism, proxied by various measures of discretionary fiscal policy, contributes to output volatility and so induces macroeconomic instability at the regional level in Russia. This result corroborates previous studies using cross-country data. To reduce business cycle fluctuations, it would be necessary to curtail pro-cyclical fiscal activism at the regional level, e.g. via fiscal rules and sound institutions of fiscal federalism.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 13/2013.

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Length: 43 pages
Date of creation: 17 Jun 2013
Date of revision:
Handle: RePEc:hhs:bofitp:2013_013

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Related research

Keywords: output volatility; automatic stabilizers; discretionary fiscal policy; dynamic panel models; Russia;

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References

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Cited by:
  1. Eller, Markus & Fidrmuc, Jarko & Fungácová , Zuzana, 2013. "Fiscal policy and regional output volatility: Evidence from Russia," BOFIT Discussion Papers 13/2013, Bank of Finland, Institute for Economies in Transition.

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