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Is fiscal countercyclicality growth enhancing? Evidence from developing countries over the period 1990–2019

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  • Kallal, Sami

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

Abstract

The objective of this paper is to analyze the time-varying effect of improving fiscal countercyclicality on growth for a sample of 35 developing countries over the period 1990–2019. By estimating a time-varying coefficient for fiscal countercyclicality, incorporated as a variable in a panel model, we first examine how the public debt ratio and electoral motivations influence the ability to adopt countercyclical policies. Secondly, we show that greater countercyclicality positively affects economic growth and contributes to reducing the output gap, particularly during recessions, by channeling production towards its potential path. Finally, our findings are confirmed across two sub-samples, demonstrating a positive effect on growth before the 2008 crisis and a reduction in the output gap both before and after the crisis. The effect is stronger in the sub-sample characterized by high income, low debt, and strong control of corruption, suggesting that the effectiveness of countercyclical policies depends on macroeconomic and institutional factors. Countercyclical fiscal management should therefore be given greater consideration by fiscal policymakers in developing countries, both upstream and downstream.

Suggested Citation

  • Kallal, Sami, 2025. "Is fiscal countercyclicality growth enhancing? Evidence from developing countries over the period 1990–2019," LIDAM Reprints LFIN 2025003, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2025003
    DOI: https://doi.org/10.1016/j.jeca.2025.e00416
    Note: In: The Journal of Economic Asymmetries, 2025, vol. 32, e00416
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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