Advanced Search
MyIDEAS: Login

Government Size and Business Cycle Volatility; How Important Are Credit Constraints?

Contents:

Author Info

  • Markus Leibrecht

    ()

  • Johann Scharler

    ()

Abstract

In this paper we analyze how the availability of credit influences the relationship between government size as a proxy for fiscal stabilization policy and the amplitude of business cycle fluctuations in a sample of advanced OECD countries. Interpreting relatively low loan-tovalue ratios as an indication for tight credit constraints, we find that government size exerts a stabilizing effect on output and consumption growth fluctuations only when credit constraints are relatively tight. Our results are robust with respect to different measures of government size and provide support for the hypothesis that credit market frictions play a crucial role in the transmission of fiscal policy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2012-04.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2012-04.

as in new window
Length: 32
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:inn:wpaper:2012-04

Contact details of provider:
Postal: Universitätsstraße 15, A - 6020 Innsbruck
Phone: 0512/507-7151
Fax: 0512/507-2788
Email:
Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
More information through EDIRC

Related research

Keywords: business cycle; volatility; fiscal policy; stabilization policy;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  2. Lorenzo Forni & Libero Monteforte & Luca Sessa, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," Temi di discussione (Economic working papers) 652, Bank of Italy, Economic Research and International Relations Area.
  3. Cwik, Tobias & Wieland, Volker, 2009. "Keynesian government spending multipliers and spillovers in the euro area," CEPR Discussion Papers 7389, C.E.P.R. Discussion Papers.
  4. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
  5. Florin O. Bilbiie & André Meier & Gernot J. Müller, 2008. "What Accounts for the Changes in U.S. Fiscal Policy Transmission?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1439-1470, October.
  6. Rafael Domenech & Javier Andres & Antonio Fatas, 2006. "The Stabilizing Role of Government Size," Working Papers 0603, International Economics Institute, University of Valencia, revised Jan 2007.
  7. Kalemli-Ozcan, Sebnem & Sorensen, Bent E & Volosovych, Vadym, 2010. "Deep Financial Integration and Volatility," CEPR Discussion Papers 7784, C.E.P.R. Discussion Papers.
  8. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  9. Timothy J. Goodspeed & Yvon Rocaboy & Benoit Le Maux, 2011. "Political fragmentation, Party ideology and Public expenditures," Economics Working Paper Archive at Hunter College 435, Hunter College Department of Economics.
  10. Davig, Troy & Leeper, Eric M., 2011. "Monetary-fiscal policy interactions and fiscal stimulus," European Economic Review, Elsevier, vol. 55(2), pages 211-227, February.
  11. Morgan, Donald & Rime, Bertrand & Strahan, Philip E., 2004. "Bank Integration and State Business Cycles," SIFR Research Report Series 30, Institute for Financial Research.
  12. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Automatic Stabilizers and Economic Crisis: US vs. Europe," Cologne Graduate School Working Paper Series 01-02, Cologne Graduate School in Management, Economics and Social Sciences.
  13. Carmignani, Fabrizio & Colombo, Emilio & Tirelli, Patrizio, 2011. "Macroeconomic risk and the (de)stabilising role of government size," European Journal of Political Economy, Elsevier, vol. 27(4), pages 781-790.
  14. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
  15. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  16. Julian di Giovanni & Andrei A. Levchenko, 2009. "Trade Openness and Volatility," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 558-585, August.
  17. Semykina, Anastasia & Wooldridge, Jeffrey M., 2010. "Estimating panel data models in the presence of endogeneity and selection," Journal of Econometrics, Elsevier, vol. 157(2), pages 375-380, August.
  18. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
  19. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," NBER Working Papers 16479, National Bureau of Economic Research, Inc.
  20. Mona Haddad & Jamus Jerome Lim & Cosimo Pancaro & Christian Saborowski, 2013. "Trade openness reduces growth volatility when countries are well diversified," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 765-790, May.
  21. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-85, September.
  22. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
  23. Alan J. Auerbach & Daniel Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," NBER Working Papers 7662, National Bureau of Economic Research, Inc.
  24. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February.
  25. Linnemann, Ludger & Schabert, Andreas, 2003. " Fiscal Policy in the New Neoclassical Synthesis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 911-29, December.
  26. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  27. David Thesmar & Mathias Thoenig, 2011. "Contrasting Trends in Firm Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 143-80, October.
  28. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
  29. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR & CES & MSH, vol. 23, pages 297-362, 04.
  30. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  31. Fatás, Antonio & Mihov, Ilian, 1999. "Government Size and Automatic Stabilizers: International and Intranational Evidence," CEPR Discussion Papers 2259, C.E.P.R. Discussion Papers.
  32. Benassy, Jean-Pascal, 2007. "IS-LM and the multiplier: A dynamic general equilibrium model," Economics Letters, Elsevier, vol. 96(2), pages 189-195, August.
  33. Tagkalakis, Athanasios, 2008. "The effects of fiscal policy on consumption in recessions and expansions," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1486-1508, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Solomos, Dionysios & Papageorgiou, Theofanis & Koumparoulis, Dimitrios, 2012. "Financial Sector and Business Cycles Determinants in the EMU context: An Empirical Approach (1996-2011)," MPRA Paper 43858, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:inn:wpaper:2012-04. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janette Walde).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.