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Intergovernmental transfers and procyclical public spending

  • Abbott, Andrew
  • Jones, Philip
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    This paper tests the predictions that (i) sub-central government expenditures are procyclical and (ii) sub-central government expenditures are likely to be more procyclical than central government spending. The predictions are based on the importance of ‘voracity effects’ and on the proposition that they are systematically more pervasive if spending is financed by intergovernmental transfers. Evidence from 23 OECD countries between 1995 and 2006 indicates that sub-central government spending is more procyclical than central government expenditure.

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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 115 (2012)
    Issue (Month): 3 ()
    Pages: 447-451

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    Handle: RePEc:eee:ecolet:v:115:y:2012:i:3:p:447-451
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    1. Alberto Alesina & Guido Tabellini, 2005. "Why is Fiscal Policy Often Procyclical?," NBER Working Papers 11600, National Bureau of Economic Research, Inc.
    2. Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
    3. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    4. Bent E. Sorensen & Lisa Wu & Oved Yosha, 1999. "Output fluctuations and fiscal policy : U.S. state and local governments 1978-1994," Research Working Paper 99-05, Federal Reserve Bank of Kansas City.
    5. ,, 2009. "Public Finance and Public Choice: Analytical Perspectives," OUP Catalogue, Oxford University Press, edition 3, number 9780199234783, July.
    6. Daniel Bergvall & Claire Charbit & Dirk-Jan Kraan & Olaf Merk, 2005. "Intergovernmental Transfers and Decentralised Public Spending," OECD Journal on Budgeting, OECD Publishing, vol. 5(4), pages 111-158.
    7. 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 (Working Papers) 6797, Inter-American Development Bank.
    8. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
    9. Ilzetzki, Ethan, 2006. "Rent seeing distortions and fiscal procyclicality," MPRA Paper 8726, University Library of Munich, Germany, revised 01 Dec 2007.
    10. Dougan, William R & Kenyon, Daphne A, 1988. "Pressure Groups and Public Expenditures: The Flypaper Effect Reconsidered," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 159-70, January.
    11. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
    12. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    13. Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
    14. Jaejoon Woo, 2009. "Why Do More Polarized Countries Run More Procyclical Fiscal Policy?," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 850-870, November.
    15. Lane, Philip R & Tornell, Aaron, 1996. " Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-41, June.
    16. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753.
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