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Fiscal Policy Responsiveness, Persistence, and Discretion

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  • António Afonso
  • Luca Agnello
  • Davide Furceri

Abstract

In this working paper, we decompose fiscal policy in three components: i) responsiveness, ii) persistence and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more persistent than responding to output variations. We also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence, suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence. Réaction au cycle, persistance et effet discrétionnaire de la politique budgétaire Nous décomposons la politique budgétaire en trois composantes : i) réponse, ii) persistance et iii) effet discrétionnaire. Utilisant un échantillon de 132 pays, nos résultats montrent que la politique budgétaire tend à être plus persistante qu’elle ne répond aux variations du PIB. Nous trouvons également qu’alors que l’effet des covariations entre pays affecte positivement (négativement) l’effet discrétionnaire, il a un effet négatif (positif) sur la persistance. Cela suggère que les pays dotés d’une forte persistance ont un effet discrétionnaire plus faible et vice versa. En particulier, alors que la taille du gouvernement, la taille du pays et le revenu ont des effets négatifs sur la composante discrétionnaire de la politique budgétaire, ils tendent à augmenter la persistance de la politique budgétaire.

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File URL: http://dx.doi.org/10.1787/228864226783
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 659.

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Date of creation: 17 Dec 2008
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Handle: RePEc:oec:ecoaaa:659-en

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Keywords: fiscal policy; fiscal volatility; volatilité fiscale; politique fiscale;

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  1. Wacziarg, Romain & Alesina, Alberto, 1998. "Openness, Country Size and Government," Scholarly Articles 4553014, Harvard University Department of Economics.
  2. Torsten Persson, 2001. "Do Political Institutions Shape Economic Policy?," NBER Working Papers 8214, National Bureau of Economic Research, Inc.
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  13. Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
  14. Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
  15. Davide Furceri, 2010. "Long-run growth and volatility: which source really matters?," Applied Economics, Taylor & Francis Journals, vol. 42(15), pages 1865-1874.
  16. 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.
  17. Gadi Barlevy, 2004. "The Cost of Business Cycles and the Benefits of Stabilization: A Survey," NBER Working Papers 10926, National Bureau of Economic Research, Inc.
  18. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  19. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
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