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

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

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/202.

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Length: 24
Date of creation: 01 Oct 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/202
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  1. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Working Papers 6358, National Bureau of Economic Research, Inc.
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