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How to limit fiscal procyclicality: the role of exchange rate regimes, fiscal rules and institutions

Author

Listed:
  • Kady Keita

    (Université d’Orléans, CNRS, LEO and World Bank)

  • Camelia Turcu

    (Université d’Orléans, CNRS, LEO, FRE 2014)

Abstract

We explore how fi scal rules, exchange rate regimes and institutional quality affect the cyclical behaviour of scal policy (i.e how government spending responds to GDP fluctuations). We perform our analysis on a panel of 153 advanced, emerging and developing countries over the period 1993-2015 using LGWOLS and 2SLS estimators. We find that the adoption of fi scal rules alone is not suffcient to promote counter-cyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality espcially in countries with exible exchange rate regimes rather than in countries with fixed exchange rates. We also fi nd that the disciplining effect of sfical rules depends on the type of rule.

Suggested Citation

  • Kady Keita & Camelia Turcu, 2019. "How to limit fiscal procyclicality: the role of exchange rate regimes, fiscal rules and institutions," Working Papers 2019.01, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2019.01
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    More about this item

    Keywords

    Cyclicality of fiscal policy; Exchange rate regimes; Fiscal rules; Institutions; 2SLS;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • O - Economic Development, Innovation, Technological Change, and Growth

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