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The Cyclical and Long-Term Behavior of Government Expenditures in Developing Countries

Author

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  • Gabriela Inchauste
  • Bernardin Akitoby
  • Benedict J. Clements
  • Sanjeev Gupta

Abstract

We examine the short- and long-term movements of government spending relative to output in 51 countries. We find that in the short term, the main components of government spending increase with output in about half of the sample countries, with some variation across spending categories and countries. Further, we find that there is a long-term relationship between government spending and output (in line with "Wagner's law") for the majority of countries for at least one spending aggregate. In the short term, we find that power dispersion and government size typically dampen the positive response of government spending to output. Output volatility and financial risk, on the other hand, contribute to the procylicality of government spending.

Suggested Citation

  • Gabriela Inchauste & Bernardin Akitoby & Benedict J. Clements & Sanjeev Gupta, 2004. "The Cyclical and Long-Term Behavior of Government Expenditures in Developing Countries," IMF Working Papers 04/202, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/202
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    Cited by:

    1. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
    2. Michel Strawczynski & Josheph Zeira, 2007. "Cyclicality of fiscal policy in Israel," Israel Economic Review, Bank of Israel, vol. 5(1), pages 47-66.
    3. Panadés Martí Judith, 2009. "Tax Evasion, Technology Shocks and the Cyclicality of Government Revenues," Working Papers 201055, Fundacion BBVA / BBVA Foundation.
    4. Luca Agnello & Ricardo M. Sousa, 2009. "The Determinants of Public Deficit Volatility," NIPE Working Papers 11/2009, NIPE - Universidade do Minho.
    5. Strawczynski Michel, 2014. "Cyclicality Of Statutory Tax Rates," Israel Economic Review, Bank of Israel, vol. 11(1), pages 67-96.
    6. Laura dos Reis & Paolo Manasse & Ugo Panizza, 2007. "Targeting the Structural Balance," Research Department Publications 4507, Inter-American Development Bank, Research Department.
    7. Brahima Coulibaly, 2012. "Monetary policy in emerging market economies: what lessons from the global financial crisis?," International Finance Discussion Papers 1042, Board of Governors of the Federal Reserve System (U.S.).
    8. Donal McGettigan & Kenji Moriyama & Jean F Noah Ndela Ntsama & Francois Painchaud & Haonan Qu & Chad Steinberg, 2013. "Monetary Policy in Emerging Markets; Taming the Cycle," IMF Working Papers 13/96, International Monetary Fund.
    9. Laura dos Reis & Paolo Manasse & Ugo Panizza, 2007. "Targeting the Structural Balance," Research Department Publications 4507, Inter-American Development Bank, Research Department.
    10. Ugo Panizza & Dany Jaimovich, 2007. "Prociclicalidad o Causalidad Reversa?," Research Department Publications 4509, Inter-American Development Bank, Research Department.
    11. Konov, Joshua Ioji, 2012. "Market Economy under Rapid Globalization and Rising Productivity," MPRA Paper 48750, University Library of Munich, Germany.
    12. repec:sgm:jbfeuw:v:1:y:2018:i:9:p:103-122 is not listed on IDEAS
    13. Strawczynski, Michel & Zeira, Joseph, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers 7271, C.E.P.R. Discussion Papers.
    14. Michel Strawczynski & Joseph Zeira, 2013. "Procyclicality of Fiscal Policy in Emerging Countries: The Cycle is the Trend," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Felipe Céspedes & Jordi Galí (ed.), Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 11, pages 427-466 Central Bank of Chile.
    15. Gaston K Mpatswe & Sampawende J Tapsoba & Robert C York, 2011. "The Cyclicality of Fiscal Policies in the CEMAC Region," IMF Working Papers 11/205, International Monetary Fund.
    16. Vratislav Izák, 2011. "The Welfare State and Economic Growth," Prague Economic Papers, University of Economics, Prague, vol. 2011(4), pages 291-308.
    17. Elva Bova & Paulo Medas & Tigran Poghosyan, 2018. "Macroeconomic Stability in Resource-rich Countries: The Role of Fiscal Policy," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(9), pages 103-122, May.

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