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Financial Integration and Fiscal Policy

  • Davide Furceri


  • Aleksandra Zdzienicka


The aim of this paper is to assess the impact of financial integration on fiscal policy. Using an unbalanced panel of 31 OECD countries from 1970 to 2009, the paper shows that financial integration has significant disciplinary effects by reducing fiscal deficits and (discretionary) spending volatility. In addition, we find that financial integration affects the composition of government debt and enhances risk-sharing by increasing the share of foreign debt to the total. The results are robust to both de jure and de facto measures of financial integration, different measures of budget balance, and different estimation strategies. Copyright Springer Science+Business Media, LLC 2012

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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 23 (2012)
Issue (Month): 5 (November)
Pages: 805-822

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Handle: RePEc:kap:openec:v:23:y:2012:i:5:p:805-822
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  1. António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
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  17. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
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