Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure
In this paper we suggest a new measure of discretionary government spending for OECD countries over the period 1980-2011. To identify the components of discretionary expenditure, we use the volatility and persistence properties of the expenditure series. Discretionary policy cannot be inertial and should be free from prior obligations. Commonly used measures of discretionary fiscal policy do not satisfy these two criteria. We find that discretionary expenditure accounts on average for about 30 per cent of total primary expenditure, suggesting that most government spending is driven by inertial and automatic components. These features help explain why government expenditure is generally not counter-cyclical even is advanced economies. Furthermore, the small share of discretionary expenditure over total expenditure significantly reduces the room of manoeuvre for counter-cyclical fiscal policy during recessions.
|Date of creation:||Apr 2013|
|Date of revision:|
|Publication status:||Published in Documents de travail du Centre d'Economie de la Sorbonne 2013.33 - ISSN : 1955-611X. 2013|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00820820|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christina D. Romer & David H. Romer, 2010.
"The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks,"
American Economic Review,
American Economic Association, vol. 100(3), pages 763-801, June.
- Christina D. Romer & David H. Romer, 2007. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," NBER Working Papers 13264, National Bureau of Economic Research, Inc.
- Lane, Philip R., 2003.
"The cyclical behaviour of fiscal policy: evidence from the OECD,"
Journal of Public Economics,
Elsevier, vol. 87(12), pages 2661-2675, December.
- Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
- Larch, Martin & Turrini, Alessandro, 2009. "The Cyclically Adjusted Budget Balance in EU Fiscal Policymaking. Love at First Sight Turned into a Mature Relationship," MPRA Paper 20594, University Library of Munich, Germany.
- Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
- Willem Adema & Pauline Fron & Maxime Ladaique, 2011. "Is the European Welfare State Really More Expensive?: Indicators on Social Spending, 1980-2012; and a Manual to the OECD Social Expenditure Database (SOCX)," OECD Social, Employment and Migration Working Papers 124, OECD Publishing.
- Martin Larch & Alessandro Turrini, 2009. "The cyclically-adjusted budget balance in EU fiscal policy making : A love at first sight turned into a mature relationship," European Economy - Economic Papers 2008 - 2015 374, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Antonio Fatás & Ilian Mihov, 2003. "The Case for Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1419-1447.
- Afonso, António & Agnello, Luca & Furceri, Davide, 2008.
"Fiscal policy responsiveness, persistence and discretion,"
Working Paper Series
0954, European Central Bank.
- António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
- António Afonso & Luca Agnello & Davide Furceri, 2008. "Fiscal Policy Responsiveness, Persistence, and Discretion," OECD Economics Department Working Papers 659, OECD Publishing.
- António Afonso & Luca Agnello & Davide Furceri, 2008. "Fiscal Policy Responiveness, Persistence and Discretion," Working Papers Department of Economics 2008/50, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
- Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
- Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00820820. 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: (CCSD)
If references are entirely missing, you can add them using this form.