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Determinants and Effects of Fiscal Counter-Cyclicality

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  • Davide Furceri
  • João Tovar Jalles

Abstract

This paper provides a novel dataset of time-varying measures of fiscal counter-cyclicality for an unbalanced panel of advanced and emerging market economies from 1980 to 2014. The use of time-varying measures of fiscal counter-cyclicality overcomes the major limitation of existing studies assessing the determinants and the effects of fiscal countercyclicality that rely on cross-country regressions and, therefore, are not able to account for country-specific as well as global factors. The key findings of the paper are as follows: (i) fiscal counter-cyclicality has increased over time for many economies over the last two decades; (ii) fiscal counter-cyclicality is positively associated with financial deepening, the level of economic development, trade openness, government size as well as with political factors; (iii) fiscal counter-cyclicality significantly reduces output volatility. Our results are robust to various specifications and endogeneity checks. ****** Este documento ofrece un novedoso conjunto de datos con medidas de la contraciclicidad de la política fiscal que son variantes en el tiempo, para un panel desbalanceado de economías avanzadas y emergentes desde 1980 hasta 2014. El uso de medidas fiscales contracíclicas que cambian en el tiempo, supera la principal limitación de los estudios existentes sobre la materia, que usualmente evalúan los determinantes y los efectos de la contraciclicidad fiscal basados en regresiones a través de países y, por lo tanto, no dan cuenta de los efectos específicos por país ni de los efectos globales. Los hallazgos más importantes del trabajo son los siguientes: (i) la contraciclicidad fiscal ha aumentado durante las últimas dos décadas en muchas economías; (ii) la contraciclicidad fiscal está asociada positivamente con la profundización financiera, el nivel de desarrollo económico, la apertura comercial, el tamaño del gobierno, así como con factores políticos; y (iii) la contraciclicidad fiscal reduce significativamente la volatilidad del producto. Nuestros resultados son robustos a varias especificaciones y verificaciones de endogeneidad.

Suggested Citation

  • Davide Furceri & João Tovar Jalles, 2018. "Determinants and Effects of Fiscal Counter-Cyclicality," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 36(85), pages 137-151, April.
    • Handle: RePEc:bdr:ensayo:v:36:y:2018:i:85:p:137-151
    DOI: 10.32468/espe.8508
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    Cited by:

    1. João Tovar Jalles & Youssouf Kiendrebeogo & Raphael Lam & Roberto Piazza, 2024. "Revisiting the countercyclicality of fiscal policy," Empirical Economics, Springer, vol. 67(3), pages 877-914, September.
    2. Furceri Davide & Jalles João Tovar, 2019. "Fiscal counter-cyclicality and productive investment: evidence from advanced economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(1), pages 1-15, January.
    3. Thomas Brändle & Marc Elsener, 2024. "Do fiscal rules matter? A survey of recent evidence," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 160(1), pages 1-38, December.
    4. António Afonso & Francisco Tiago Carvalho, 2021. "Euro area time-varying cyclicality of fiscal policy," Working Papers REM 2021/0202, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Afonso, António & Carvalho, Francisco Tiago, 2022. "Time-varying cyclicality of fiscal policy: The case of the Euro area," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    fiscal policy; fiscal stabilization; output volatility; time-varying coefficients; weighted least squares; política fiscal; estabilización fiscal; volatilidad del producto; coeficientes cambiantes en el tiempo; mínimos cuadrados ponderados;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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