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

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  • 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: 59
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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  1. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November.
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  10. 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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  14. Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
  15. C. John McDermott & Eswar Prasad & Pierre-Richard Agénor, 1999. "Macroeconomic Fluctuations in Developing Countries - Some Stylized Facts," IMF Working Papers 99/35, International Monetary Fund.
  16. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
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Citations

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Cited by:
  1. Sarra Ben Slimane & Moez Ben Tahar, 2010. "Why Is Fiscal Policy Procyclical in MENA Countries?," Working Papers 566, Economic Research Forum, revised Nov 2010.
  2. International Monetary Fund, 2011. "The Cyclicality of Fiscal Policies in the CEMAC Region," IMF Working Papers 11/205, International Monetary Fund.
  3. Jordi Caballé & Judith Panadés, 2011. "Tax Evasion, Technology Shocks, and the Cyclicality of Government Revenues," UFAE and IAE Working Papers 870.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Luca Agnello & Ricardo M. Sousa, 2009. "The determinants of public deficit volatility," Working Paper Series 1042, European Central Bank.
  5. Paolo Manasse & Ugo Panizza & Laura Dos Reis, 2007. "Targeting the Structural Balance ," IDB Publications 6722, Inter-American Development Bank.
  6. Strawczynski, Michel & Zeira, Joseph, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers 7271, C.E.P.R. Discussion Papers.
  7. 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.).
  8. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
  9. Ugo Panizza & Dany Jaimovich, 2007. "Prociclicalidad o Causalidad Reversa?," Research Department Publications 4509, Inter-American Development Bank, Research Department.
  10. 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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