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Fiscal Policy Discretion, Private Spending, and Crisis Episodes

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  • Luca Agnello

    ()
    (Banque de France)

  • Davide Furceri

    ()
    (International Monetary Fund)

  • Ricardo M. Sousa

    ()
    (Universidade do Minho - NIPE)

Abstract

In this paper, we assess the impact of fiscal policy discretion on economic activity in the short and medium-term. Using a panel of 132 countries from 1960 to 2008, we find that fiscal policy discretion provides a net stimulus to the economy in the short-run and crowding-in effects are amplified once crisis episodes are controlled for– in particular, banking crises - giving a great scope for fiscal policy stimulus packages. However, crowding-out effects take over in the long-run – especially, in the case of debt crises -, in line with the concerns about long-term debt sustainability.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 31/2011.

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Date of creation: 2011
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Handle: RePEc:nip:nipewp:31/2011

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Keywords: Fiscal policy discretion; GDP growth; private consumption; private investment; crowding-in; crowding-out;

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Cited by:
  1. Vítor Castro, 2013. "Macroeconomic Determinants of the Credit Risk in the Banking System: The Case of the GIPSI," GEMF Working Papers 2013-12, GEMF - Faculdade de Economia, Universidade de Coimbra.

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