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The Cyclical and Long-Term Behavior of Government Expenditures in Developing Countries

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Author Info

  • Gabriela Inchauste
  • Bernardin Akitoby
  • Benedict J. Clements
  • Sanjeev Gupta

Abstract

We examine the short- and long-term movements of government spending relative to output in 51 countries. We find that in the short term, the main components of government spending increase with output in about half of the sample countries, with some variation across spending categories and countries. Further, we find that there is a long-term relationship between government spending and output (in line with "Wagner's law") for the majority of countries for at least one spending aggregate. In the short term, we find that power dispersion and government size typically dampen the positive response of government spending to output. Output volatility and financial risk, on the other hand, contribute to the procylicality of government spending.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/202.

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Length: 24
Date of creation: 01 Oct 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/202

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Keywords: Developing countries; Government expenditures;

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References

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  9. Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
  10. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  11. Zvi Hercowitz & Michel Strawczynski, 2004. "Cyclical Ratcheting in Government Spending: Evidence from the OECD," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 353-361, February.
  12. Adriana Arreaza & Bent E. Sgrensen & Oved Yosha, 1999. "Consumption Smoothing through Fiscal Policy in OECD and EU Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 59-80 National Bureau of Economic Research, Inc.
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  15. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
  16. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
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Citations

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Cited by:
  1. Brahima Coulibaly, 2012. "Monetary policy in emerging market economies: what lessons from the global financial crisis?," International Finance Discussion Papers 1042, Board of Governors of the Federal Reserve System (U.S.).
  2. Panadés Martí Judith, 2009. "Tax Evasion, Technology Shocks and the Cyclicality of Government Revenues," Working Papers 201055, Fundacion BBVA / BBVA Foundation.
  3. Ugo Panizza & Dany Jaimovich, 2007. "Prociclicalidad o Causalidad Reversa?," Research Department Publications 4509, Inter-American Development Bank, Research Department.
  4. International Monetary Fund, 2011. "The Cyclicality of Fiscal Policies in the CEMAC Region," IMF Working Papers 11/205, International Monetary Fund.
  5. Agnello, Luca & Sousa, Ricardo M., 2009. "The determinants of public deficit volatility," Working Paper Series 1042, European Central Bank.
  6. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
  7. Strawczynski, Michel, 2013. "Cyclicality of statutory tax rates," MPRA Paper 48821, University Library of Munich, Germany.
  8. Strawczynski, Michel & Zeira, Joseph, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers 7271, C.E.P.R. Discussion Papers.
  9. Laura dos Reis & Paolo Manasse & Ugo Panizza, 2007. "Targeting the Structural Balance," Research Department Publications 4507, Inter-American Development Bank, Research Department.
  10. Donal McGettigan & Kenji Moriyama & Jean F Noah Ndela Ntsama & Francois Painchaud & Haonan Qu & Chad Steinberg, 2013. "Monetary Policy in Emerging Markets: Taming the Cycle," IMF Working Papers 13/96, International Monetary Fund.
  11. Vratislav Izák, 2011. "The Welfare State and Economic Growth," Prague Economic Papers, University of Economics, Prague, vol. 2011(4), pages 291-308.

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