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Financial Integration and Fiscal Policy

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  • Davide Furceri

    ()

  • Aleksandra Zdzienicka

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Abstract

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

Suggested Citation

  • Davide Furceri & Aleksandra Zdzienicka, 2012. "Financial Integration and Fiscal Policy," Open Economies Review, Springer, vol. 23(5), pages 805-822, November.
  • Handle: RePEc:kap:openec:v:23:y:2012:i:5:p:805-822
    DOI: 10.1007/s11079-011-9236-y
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    File URL: http://hdl.handle.net/10.1007/s11079-011-9236-y
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Stefan Hohberger & Lukas Vogel & Bernhard Herz, 2014. "Budgetary-Neutral Fiscal Policy Rules and External Adjustment," Open Economies Review, Springer, vol. 25(5), pages 909-936, November.
    2. Simone Salotti & Carmine Trecroci, 2012. "Even worse than you thought: The effects of government debt on investment and productivity," EcoMod2012 4200, EcoMod.
    3. Agnese Sacchi & Simone Salotti, 2016. "A Comprehensive Analysis of Expenditure Decentralization and of the Composition of Local Public Spending," Regional Studies, Taylor & Francis Journals, vol. 50(1), pages 93-109, January.
    4. repec:taf:regstd:v:51:y:2017:i:4:p:507-522 is not listed on IDEAS
    5. Simone Salotti & Carmine Trecroci, 2016. "The Impact of Government Debt, Expenditure and Taxes on Aggregate Investment and Productivity Growth," Economica, London School of Economics and Political Science, vol. 83(330), pages 356-384, April.
    6. Agnese Sacchi & Simone Salotti, 2017. "The influence of decentralized taxes and intergovernmental grants on local spending volatility," Regional Studies, Taylor & Francis Journals, vol. 51(4), pages 507-522, April.
    7. Simone Salotti & Carmine Trecroci, 2012. "Even Worse than You thought: The Impact of Public Debt on Aggregate Investment and Productivity," DEGIT Conference Papers c017_020, DEGIT, Dynamics, Economic Growth, and International Trade.

    More about this item

    Keywords

    Financial integration; Fiscal policy; Spending volatility; Foreign debt; F3; F4; E62;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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