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The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD

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  • Philip R. Lane

Abstract

This paper addresses the topic of cyclicality in fiscal policy. In particular, we show that the level of cyclicality varies across spending categories and across OECD countries. In line with leading theories of fiscal cyclicality, we show that countries with volatile output and dispersed political power are the most likely to run procyclical fiscal policies. Wage government consumption is highlighted as the most important channel by which these variables affect fiscal cyclicality

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File URL: http://www.tcd.ie/Economics/TEP/2002_papers/tepno2PL22.PDF
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Bibliographic Info

Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 20022.

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Date of creation: 2002
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Handle: RePEc:tcd:tcduee:20022

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Postal: Trinity College, Dublin 2
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Web page: http://www.tcd.ie/Economics/
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  1. Adriana Arreaza & Bent E. Sorensen & Oved Yosha, 1998. "Consumption Smoothing through Fiscal Policy in OECD and EU Countries," NBER Working Papers 6372, National Bureau of Economic Research, Inc.
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  7. Ernesto H. Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," Research Department Publications 4110, Inter-American Development Bank, Research Department.
  8. Philip R. Lane & Aaron Tornell, 1998. "Why Aren't Savings Rates in Latin America Procyclical?," NBER Working Papers 6502, National Bureau of Economic Research, Inc.
  9. Tornell, Aaron & Lane, Philip R., 1998. "Are windfalls a curse?: A non-representative agent model of the current account," Journal of International Economics, Elsevier, vol. 44(1), pages 83-112, February.
  10. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  11. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
  12. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Restraining Yourself: Fiscal Rules and Stabilization," CEPR Discussion Papers 1029, C.E.P.R. Discussion Papers.
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  14. Tamim Bayoumi & Barry Eichengreen, 1995. "Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 32-48, March.
  15. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
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  18. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  19. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  21. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  22. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  23. C. John McDermott & Eswar Prasad & Pierre-Richard Agénor, 1999. "Macroeconomic Fluctuations in Developing Countries," IMF Working Papers 99/35, International Monetary Fund.
  24. Michael Gavin & Ricardo Hausmann & Roberto Perotti & Ernesto Talvi, 1996. "Managing Fiscal Policy in Latin America and the Caribbean: Volatility, Procyclicality, and Limited Creditworthiness," IDB Publications 6797, Inter-American Development Bank.
  25. Hercowitz, Z. & Strawczynski, M., 1999. "Cyclical Bias in Government Spending: Evidence from the OECD," Papers 6-99, Tel Aviv.
  26. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  27. Adriana Arreaza & Bent E. Sgrensen & Oved Yosha, 1999. "Consumption Smoothing through Fiscal Policy in OECD and EU Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 59-80 National Bureau of Economic Research, Inc.
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