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Fiscal Policy and Macroeconomic Stability: New Evidence and Policy Implications


  • Xavier Debrun

    () (International Monetary Fund)

  • Radhicka Kapoor

    (London School of Economics)


The paper revisits the empirical link between fiscal policy and macroeconomic stability. Our basic presumption is that by definition, the operation of automatic stabilizers should always and everywhere contribute to greater macroeconomic stability (output and consumption). However, two stylized facts seem at odds with that prediction. First, the moderating effect of automatic stabilizers appears to have weakened in advanced economies between the mid-1990s and 2006 (the end of our main sample). Second, automatic stabilizers do not seem to be effective in developing economies. Our analysis addresses these apparent puzzles by accounting for the government’s ambivalent role as a shock absorber and a shock inducer for determinants of macroeconomic volatility over time. Results provide strong support for the view that fiscal stabilization operates mainly through automatic stabilizers.

Suggested Citation

  • Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability: New Evidence and Policy Implications," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(2), pages 69-101, July.
  • Handle: RePEc:ief:reveye:v:48:y:2010:i:2:p:69-101

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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecmode:v:65:y:2017:i:c:p:138-146 is not listed on IDEAS
    2. Květa Kubátová & Aneta Borůvková, 2014. "Changes in Tax Mixes of European Union Countries in Crisis," Český finanční a účetní časopis, University of Economics, Prague, vol. 2014(1), pages 87-104.
    3. Hossein Askari & Abbas Mirakhor, 2014. "Risk sharing, public policy and the contribution of Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(271), pages 345-379.
    4. Liu, Kai & Poplawski-Ribeiro, Marcos, 2015. "Short- and Long-Run Fiscal Elasticities: International Evidence," MPRA Paper 65950, University Library of Munich, Germany.

    More about this item


    Economic stabilization; Fiscal policy; Fiscal stability.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H6 - Public Economics - - National Budget, Deficit, and Debt


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