Cyclicality of Fiscal Policy over the Business Cycle: an Empirical Study on Developed and Developing Countries
This paper presents strong empirical evidence that automatic stabilizers and countercyclical fiscal policy decrease output volatility. The conducted empirical analysis proves the economic intuition that the automatic fiscal stance is countercyclical, regardless of the size and the prosperity of the economy. Connecting our empirical results to the Endogenous Growth Theory, we develop the idea that countercyclical fiscal policy boosts long-term economic growth. We conduct the study on two samples of countries – developed and developing. We recognize the fiscal policy pattern of the developed nations to be countercyclical, whereas the one of the developing countries to be acyclical. The derived results support our hypothesis that countercyclical fiscal policy reduces output volatility as the volatility of per capita output of the developed nations appear significantly less than the one of the developing countries. We identify possible determinants of fiscal policy in good and bad times. We empirically recognize that openness to trade, terms of trade, level of corruption and financial development affect fiscal policy in both samples of countries.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: 31 Aksakov St., 1000 Sofia|
Phone: (+359-2) 9859 5601
Fax: (+359-2) 981 33 58
Web page: http://www.aeaf.minfin.bg/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eaf:wpaper:12010en. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kiril Vassilev)The email address of this maintainer does not seem to be valid anymore. Please ask Kiril Vassilev to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.