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Is Tighter Fiscal Policy Expansionary Under Fiscal Dominance?: Hypercrowding Out In Latin America

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  • WILLIAM C. GRUBEN
  • JOHN H. WELCH

Abstract

Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are so intrusive to a nation's financial system that a move toward fiscal surplus lowers interest rates and increases growth. We sample nine Latin American countries to test for these relationships. The impulse‐response results of vector error correction models, six nations test positive for these two connections, suggesting market concern despite recent efforts toward fiscal balance. (JEL E430, E620, O230, O540)

Suggested Citation

  • William C. Gruben & John H. Welch, 2010. "Is Tighter Fiscal Policy Expansionary Under Fiscal Dominance?: Hypercrowding Out In Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 28(2), pages 171-181, April.
    • Handle: RePEc:bla:coecpo:v:28:y:2010:i:2:p:171-181
    DOI: 10.1111/j.1465-7287.2009.00062.x
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    1. Anshuman Kamila, 2022. "Fiscal dominance in India: an empirical estimation," Indian Economic Review, Springer, vol. 57(1), pages 113-132, June.
    2. Pablo Mendieta Ossio & Hugo Rodriguez Gonzales, 2005. "Interacción de la política fiscal con la política monetaria en el MERCOSUR y países asociados," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 8(1), pages 49-97, December.
    3. Kamila, Anshuman, 2021. "Fiscal dominance in India: An empirical estimation," Working Papers 21/359, National Institute of Public Finance and Policy.
    4. Anshuman Kamila, 2021. "Fiscal dominance in India: Through the windshield and the rearview mirror," IEG Working Papers 429, Institute of Economic Growth.

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