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Fiscal policy responsiveness, persistence, and discretion

  • António Afonso

    ()

  • Luca Agnello

    ()

  • Davide Furceri

    ()

We decompose fiscal policy in three components: i) responsiveness, ii) persistence and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more persistent than to respond to output conditions. We also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence thereby suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence. JEL Classification: E62, H50

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Article provided by Springer in its journal Public Choice.

Volume (Year): 145 (2010)
Issue (Month): 3 (December)
Pages: 503-530

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Handle: RePEc:kap:pubcho:v:145:y:2010:i:3:p:503-530
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  1. Afonso, António & Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2009. "Assessing long-term fiscal developments - a new approach," Working Paper Series 1032, European Central Bank.
  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.
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  14. Davide Furceri, 2010. "Long-run growth and volatility: which source really matters?," Applied Economics, Taylor & Francis Journals, vol. 42(15), pages 1865-1874.
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