Advanced Search
MyIDEAS: Login

Asymmetric Fiscal Stabilization Policy and the Public Deficit: Theory and Evidence

Contents:

Author Info

  • Karin Mayr

    ()

  • Johann Scharler

    ()

Abstract

This paper studies the implications of asymmetric fiscal stabilization policy for the budget deficit. In our model, the government is more concerned about downturns than upturns in economic activity and therefore conducts fiscal stabilization policy in a precautionary way. We show that this type of behavior results in a deficit which on average exceeds its target levelt. We test our hypothesis empirically and find that asymmetric preferences for output stabilization are consistent with how fiscal policy was conducted in a sample of OECD countries during 1987-2005. According to our estimates, the upward bias due to precautionary behavior accounted for roughly 13 percent of the average deficit.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0908.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0908.

as in new window
Length:
Date of creation: May 2009
Date of revision:
Handle: RePEc:vie:viennp:0908

Contact details of provider:
Web page: http://www.univie.ac.at/vwl

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc.
  2. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  3. Torsten Persson & Gerard Roland & Guido Tabellini, 2007. "Electoral Rules and Government Spending in Parliamentary Democracies," Levine's Working Paper Archive 321307000000000880, David K. Levine.
  4. Surico, Paolo, 2003. "Measuring the time-inconsistency of US monetary policy," Working Paper Series 0291, European Central Bank.
  5. Aghion, Philippe & Marinescu, Ioana, 2007. "Cyclical Budgetary Policy and Economic Growth: What Do We Learn From OECD Panel Data?," Scholarly Articles 3350066, Harvard University Department of Economics.
  6. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
  7. Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
  8. Sorensen, B.E. & Wu, L. & Yosha, O., 1999. "Output Fluctuations and Fiscal Policy: U.S. State and Local Governments 1978-1994," Papers 22-99, Tel Aviv.
  9. Alberto Alesina & Guido Tabellini, 2005. "Why is fiscal policy often procyclical?," Harvard Institute of Economic Research Working Papers 2090, Harvard - Institute of Economic Research.
  10. Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
  11. Arreaza, A. & Sorensen, B.E. & Yosha, O., 1997. "Consumption Smoothing Through Fiscal Policy in OECD and EU Countries," Papers 37-97, Tel Aviv.
  12. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  13. Sven Jari Stehn & Daniel Leigh, 2009. "Fiscal and Monetary Policy During Downturns," IMF Working Papers 09/50, International Monetary Fund.
  14. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  15. Ruge-Murcia, Francisco J., 2003. "Does the Barro-Gordon model explain the behavior of US inflation? A reexamination of the empirical evidence," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1375-1390, September.
  16. Aghion, Philippe & Alesina, Alberto F & Trebbi, Francesco, 2002. "Endogenous Political Institutions," CEPR Discussion Papers 3473, C.E.P.R. Discussion Papers.
  17. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
  18. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
  19. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
  20. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  21. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  22. Persson, Torsten & Svensson, Lars E O, 1989. "Why a Stubborn Conservative Would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 325-45, May.
  23. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  24. Zvi Hercowitz & Michel Strawczynski, 2004. "Cyclical Ratcheting in Government Spending: Evidence from the OECD," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 353-361, February.
  25. Alesina, Alberto & Cohen, Gerald D. & Roubini, Nouriel, 1993. "Electoral business cycle in industrial democracies," European Journal of Political Economy, Elsevier, vol. 9(1), pages 1-23, March.
  26. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
  27. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Roberta Moreira Wichmann & Marcelo Savino Portugal, 2014. "Política Fiscal Assimétrica: O Caso Do Brasil," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 038, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:vie:viennp:0908. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paper Administrator).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.