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Public expenditure and growth volatility: do "globalisation" and institutions matter?

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Author Info
Fabrizio Carmignani (United Nations Economic Commission for Africa¤)
Emilio Colombo () (Department of Economics, University of Milan-Bicocca)
Patrizio Tirelli () (Department of Economics, University of Milan-Bicocca)

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Abstract

We revisit the empirical relationship between output volatility and government expenditure in a model where the two are jointly deter- mined. The key regressors in our model are trade and ¯nancial integra- tion indicators, institutional variables, including central bank indepen- dence, and a measure of de facto exchange rate °exibility. Our ¯ndings consistently signal that government discretion has destabilising e®ects on growth volatility. We con¯rm that government size increases with trade integration, but this has adverse e®ects because public spending is positively related to growth volatility. Institutions that increase policy- makers accountability limit the level of public expenditure and volatility. In this regard, our results support the view that stronger institutions increase policy efficiency.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper116.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 116.

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Length: 32 pages
Date of creation: 2007
Date of revision: 2007
Handle: RePEc:mib:wpaper:116

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Related research
Keywords: Output volatility; government expenditure; trade openness; financial openness; central bank independence; political institutions;

Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F30 - International Economics - - International Finance - - - General
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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