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Fiscal Policy Discretion, Private Spending, and Crisis Episodes

  • Agnello, L.
  • Furceri, D.
  • R.M, Sousa.

In this paper, we assess the impact of fiscal policy discretion on economic activity in the short and medium-term. Using a panel of 132 countries from 1960 to 2008, we find that fiscal policy discretion provides a net stimulus to the economy in the short-run and crowding-in effects are amplified once crisis episodes are controlled for– in particular, banking crises - giving a great scope for fiscal policy stimulus packages. However, crowding-out effects take over in the long-run – especially, in the case of debt crises -, in line with the concerns about long-term debt sustainability.

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Paper provided by Banque de France in its series Working papers with number 354.

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Length: 44 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:bfr:banfra:354
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