IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/10-155.html
   My bibliography  Save this paper

Automatic Stabilizers and the Size of Government; Correcting a Common Misunderstanding

Author

Listed:
  • Carlo Cottarelli
  • Annalisa Fedelino

Abstract

The size of government is a commonly used variable in many analytical studies on the effects of fiscal policy. An accepted practice is to measure it as the ratio of government spending to GDP. However, this is not the correct metric when computing the stabilization effects of nondiscretionary fiscal policy. Intuitively, public spending does not react to cyclical conditions as much as taxes do - as reflected in the standard zero-one elasticity assumptions for spending and revenue, respectively. This paper shows that the revenue to GDP ratio is the appropriate indicator of government size for the purpose of assessing the stabilization effects of nondiscretionary fiscal policy.

Suggested Citation

  • Carlo Cottarelli & Annalisa Fedelino, 2010. "Automatic Stabilizers and the Size of Government; Correcting a Common Misunderstanding," IMF Working Papers 10/155, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/155
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24018
    Download Restriction: no

    References listed on IDEAS

    as
    1. Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability; Automatic Stabilizers Work, Always and Everywhere," IMF Working Papers 10/111, International Monetary Fund.
    2. Bouthevillain, C. & Van Den Dool, G. & Langenus, G. & Mohr, M. & Momigliano, S. & Tujula, M. & De Cos, P.H. & Cour-Thimann, Philippine, 2001. "Cyclically Adjusted Budget Balances: an Alternative Approach," Papers 77, Quebec a Montreal - Recherche en gestion.
    3. Young Lee & Taeyoon Sung, 2007. "Fiscal Policy, Business Cycles and Economic Stabilisation: Evidence from Industrialised and Developing Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 28(4), pages 437-462, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Checherita-Westphal, Cristina & Attinasi, Maria Grazia & Rieth, Malte, 2011. "Labour tax progressivity and output volatility: evidence from OECD countries," Working Paper Series 1380, European Central Bank.
    2. Aida Caldera Sánchez & Oliver Röhn, 2016. "How do policies influence GDP tail risks?," OECD Economics Department Working Papers 1339, OECD Publishing.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:10/155. 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: (Jim Beardow) or (Hassan Zaidi). General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.