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Redistributive fiscal policies and business cycles in emerging economies

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  • Michaud, Amanda
  • Rothert, Jacek

Abstract

Government expenditures are pro-cyclical in emerging markets and counter-cyclical in developed economies. We show this pattern is most pronounced in social transfers which are also a large component of total government expenditures (28–39%). The discrepancy in the cyclicality of spending on goods and services is smaller, by contrast, and the category accounts for just 11–16% of total government expenditures. In a small open economy model, we find disparate social transfer policies can account for about half of the larger cyclical volatility of consumption relative to output in emerging economies compared to developed. We analyze how differences in tax policy and the nature of underlying inequality amplify or mitigate this result.

Suggested Citation

  • Michaud, Amanda & Rothert, Jacek, 2018. "Redistributive fiscal policies and business cycles in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 123-133.
  • Handle: RePEc:eee:inecon:v:112:y:2018:i:c:p:123-133
    DOI: 10.1016/j.jinteco.2018.02.003
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    4. Leonel Muinelo-Gallo & Ronald Miranda, 2020. "The Behaviour of Social Transfers over the Business Cycle: Empirical Evidence of Uruguay," Hacienda Pública Española / Review of Public Economics, IEF, vol. 233(2), pages 25-54, June.
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    7. Sakkas, Stelios & Varthalitis, Petros, 2018. "The (intertemporal) equity-efficiency trade-off of fiscal consolidation," MPRA Paper 90983, University Library of Munich, Germany.
    8. Andrew, Kevin & Majerbi, Basma & Rhodes, Ekaterina, 2022. "Slouching or speeding toward net zero? Evidence from COVID-19 energy-related stimulus policies in the G20," Ecological Economics, Elsevier, vol. 201(C).
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    10. Tamon Asonuma & Hyungseok Joo, 2021. "Public Capital and Fiscal Constraint in Sovereign Debt Crises," School of Economics Discussion Papers 0621, School of Economics, University of Surrey.
    11. Horvath, Jaroslav & Yang, Guanyi, 2022. "Unemployment dynamics and informality in small open economies," European Economic Review, Elsevier, vol. 141(C).
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    More about this item

    Keywords

    Fiscal policy; Emerging markets; Business cycles; Redistributive effects;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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