The Determinants of Public Deficit Volatility

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The Determinants of Public Deficit Volatility

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Luca Agnello () (University of Palermo, Department of Economics, Business and Finance)
Ricardo M. Sousa () (Universidade do Minho - NIPE)

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Abstract

This paper empirically analyzes the political, institutional and economic sources of public deficit volatility. Using the system-GMM estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper-inflation episodes and for countries with a high degree of openness.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 11/2009.

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Date of creation: 2009
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Handle: RePEc:nip:nipewp:11/2009

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Paper
- Luca Agnello & Ricardo M. Sousa, 2009. "The determinants of public deficit volatility," Working Paper Series 1042, European Central Bank. [Downloadable!]

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-05-16 (All new papers)
NEP-POL-2009-05-16 (Positive Political Economics)

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