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Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World

Author

Listed:
  • Elva Bova
  • Nathalie Carcenac
  • Martine Guerguil

Abstract

This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy. We find that, since the early 2000s, developing countries outnumbered advanced economies as users of fiscal rules. Rules were adopted either as part of the toolkit to join currency unions or to strengthen fiscal frameworks during and after large stabilization and policy reform episodes. The paper also finds that the greater use of fiscal rules has not shielded these countries from procyclicality, since fiscal policy remains procyclical following the adoption of a fiscal rule. We find partial evidence that some features of “second generation” rules, such as the use of cyclically-adjusted targets, well-defined escape clauses, together with stronger legal and enforcement arrangements, may be associated with less procyclicality.

Suggested Citation

  • Elva Bova & Nathalie Carcenac & Martine Guerguil, 2014. "Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World," IMF Working Papers 14/122, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/122
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    References listed on IDEAS

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    10. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR;CES;MSH, vol. 23, pages 297-362, April.
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    Citations

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    Cited by:

    1. Aygun Garayeva & Gulzar Tahirova, 2017. "Government Spending Effectiveness and the Quality of Fiscal Institutions," Izvestiya, Varna University of Economics, issue 2, pages 128-143.
    2. Maxime Menuet, 2019. "Fiscal rule and shock amplification : A stochastic endogenous growth model," Working Papers hal-02153887, HAL.
    3. Guillermo Perry & Eduardo García, 2016. "The Influence of Multilateral Development Institutions on Latin American Development Strategies. Special Issue of International Development Policy on Latin America," Documentos CEDE 014591, Universidad de los Andes - CEDE.
    4. Elkhan Sadik-Zada, Andrea Gatto & Andrea Gatto, 2019. "Determinants of the Public Debt and the Role of the Natural Resources: A Cross-Country Analysis," Working Papers 2019.04, Fondazione Eni Enrico Mattei.
    5. Guerguil, Martine & Mandon, Pierre & Tapsoba, René, 2017. "Flexible fiscal rules and countercyclical fiscal policy," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 189-220.
    6. Raju Huidrom & M. Ayhan Kose & Franziska L. Ohnsorge, 2018. "Challenges of Fiscal Policy in Emerging and Developing Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(9), pages 1927-1945, July.
    7. repec:kap:pubcho:v:178:y:2019:i:1:d:10.1007_s11127-018-0605-6 is not listed on IDEAS
    8. Fuad Mammadov & Shaig Adigozalov, 2017. "Are fiscal rules helpful in mitigating the impact of oil market fluctuations?," Working Papers 1703, Central Bank of Azerbaijan Republic.
    9. Ardanaz, Martín & Izquierdo, Alejandro, 2017. "Current Expenditure Upswings in Good Times and Capital Expenditure Downswings in Bad Times?: New Evidence from Developing Countries," IDB Publications (Working Papers) 8558, Inter-American Development Bank.
    10. repec:ilo:ilowps:488131 is not listed on IDEAS
    11. Mahmoud Al Iriani & Yahsob Al Eriani, 2015. "Fiscal Institutions and Macroeconomic Managment in Resource Rich Economies: the Case of Yemen," Working Papers 935, Economic Research Forum, revised Aug 2015.
    12. DUMITRESCU, Bogdan Andrei, 2015. "The Fiscal Framework In Romania – The Efficiency Of Fiscal Rules," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 19(3), pages 91-106.
    13. Yener Altunbaş & John Thornton, 2017. "Why Do Countries Adopt Fiscal Rules?," Manchester School, University of Manchester, vol. 85(1), pages 65-87, January.
    14. Tóth, Csaba G., 2017. "Own or inherited? The effect of national fiscal rules after changes of government," MPRA Paper 81178, University Library of Munich, Germany.
    15. Leibfritz, Willi & Rottmann, Horst, 2013. "Fiscal policy during business cycles in developing countries: The case of Africa," Weidener Diskussionspapiere 36, University of Applied Sciences Amberg-Weiden (OTH).
    16. Pandey, Radhika & Patnaik, Ila, 2019. "Fiscal policy cyclicality in South Asian economies," Working Papers 19/268, National Institute of Public Finance and Policy.
    17. Combes, Jean-Louis & Minea, Alexandru & Sow, Moussé, 2017. "Is fiscal policy always counter- (pro-) cyclical? The role of public debt and fiscal rules," Economic Modelling, Elsevier, vol. 65(C), pages 138-146.
    18. repec:jes:eurint:y:2017:v:4:p:180-197 is not listed on IDEAS
    19. repec:uii:journl:v:9:y:2017:i:1:p:84-97 is not listed on IDEAS
    20. Ray, Nikhil. & Velasquez, Agustin. & Islam, Iyanatul., 2015. "Fiscal rules, growth and employment : a developing country perspective," ILO Working Papers 994881313402676, International Labour Organization.
    21. Grégory Levieuge & Yannick Lucotte & Florian Pradines-Jobet, 2019. "The Cost of Banking Crises: Does the Policy Framework Matter?," Working papers 712, Banque de France.

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