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Government Size and Business Cycle Volatility; How Important Are Credit Constraints?

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  • Markus Leibrecht

    () (Leuphana University Lueneburg, Department of Economics, Germany)

  • Johann Scharler

    () (University of Innsbruck, Department of Economics, Austria)

Abstract

In this paper we analyze how the availability of credit in uences the relationship between government size as a proxy for scal stabilization policy and the amplitude of business cycle uctuations in a sample of advanced OECD countries. Interpreting relatively low loan-tovalue ratios as an indication for tight credit constraints, we nd that government size exerts a stabilizing e ect on output and consumption growth uctuations only when credit constraints are relatively tight. Our results are robust with respect to di erent measures of government size and provide support for the hypothesis that credit market frictions play a crucial role in the transmission of scal policy.

Suggested Citation

  • Markus Leibrecht & Johann Scharler, 2012. "Government Size and Business Cycle Volatility; How Important Are Credit Constraints?," Working Paper Series in Economics 237, University of Lüneburg, Institute of Economics.
  • Handle: RePEc:lue:wpaper:237
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    References listed on IDEAS

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    Cited by:

    1. Dionysios K. Solomos & Dimitrios N. Koumparoulis, 2013. "Financial Sector and Business Cycles Determinants in the EMU: An Empirical Approach (1996-2011)," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 34-58.
    2. Solomos, Dionysios & Papageorgiou, Theofanis & Koumparoulis, Dimitrios, 2012. "Financial Sector and Business Cycles Determinants in the EMU context: An Empirical Approach (1996-2011)," MPRA Paper 43858, University Library of Munich, Germany.

    More about this item

    Keywords

    Business cycle; volatility; scal policy; stabilization policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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