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The determinants of public deficit volatility

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  • Agnello, Luca
  • Sousa, Ricardo M.

Abstract

This paper empirically analyzes the political, institutional and economic sources of public deficit volatility. Using the system-GMM estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper-inflation episodes and for countries with a high degree of openness. JEL Classification: E31, E63

Suggested Citation

  • Agnello, Luca & Sousa, Ricardo M., 2009. "The determinants of public deficit volatility," Working Paper Series 1042, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20091042
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    Citations

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    Cited by:

    1. Luca Agnello & Ricardo M. Sousa, 2014. "How Does Fiscal Consolidation Impact on Income Inequality?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 702-726, December.
    2. Agnello, L. & Furceri, D. & R.M, Sousa., 2011. "Fiscal Policy Discretion, Private Spending, and Crisis Episodes," Working papers 354, Banque de France.
    3. Serhan Cevik & Katerina Teksoz, 2014. "Deep Roots of Fiscal Behavior," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(2), pages 5-33, November.
    4. Emilia Câmpeanu & Andreea Stoian, 2010. "Fiscal Policy Reaction in the Short Term for Assessing Fiscal Sustainability in the Long Runin Central and Eastern European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 501-518, December.
    5. Mara, Eugenia-Ramona, 2012. "Determinants of fiscal budget volatility in old versus new EU member states," MPRA Paper 42555, University Library of Munich, Germany.
    6. Bruno Albuquerque, 2012. "Fiscal institutions and public spending volatility in Europe," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    7. Carine Meyimdjui, 2017. "Food Price Shocks and Government Expenditure Composition: Evidence from African Countries," Working Papers halshs-01457366, HAL.
    8. Carine MEYIMDJUI, 2017. "Food Price Shocks and Government Expenditure Composition: Evidence from African Countries," Working Papers 201703, CERDI.
    9. Luca Agnello & Ricardo M. Sousa, 2011. "Fiscal Consolidation and Income Inequality," NIPE Working Papers 34/2011, NIPE - Universidade do Minho.
    10. Anwar, Mumtaz & Ahmad, Munazza, 2012. "Political determinants of budget deficit in Pakistan: An empirical investigation," HWWI Research Papers 135, Hamburg Institute of International Economics (HWWI).
    11. Naotaka Sugawara, 2014. "From Volatility to Stability in Expenditure; Stabilization Funds in Resource-Rich Countries," IMF Working Papers 14/43, International Monetary Fund.

    More about this item

    Keywords

    institutions; political instability; public deficit; volatility;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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