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De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment

  • Joshua Aizenman
  • Yothin Jinjarak

We define the notion of a 'de facto fiscal space' of a country as the inverse of the tax-years it would take to repay the public debt. Specifically, we measure the outstanding public debt relative to the de facto tax base, where the latter measures the realized tax collection, averaged across several years to smooth for business cycle fluctuations. We apply this concept to account for the cross-country variation in the fiscal stimulus associated with the global crisis of 2009-2010. We find that greater de facto fiscal space prior to the global crisis, higher GDP/capita, higher financial exposure to the US, and lower trade openness were associated with a higher fiscal stimulus/GDP during 2009-2010. Joint estimation indicates that higher trade openness was associated with lower fiscal stimulus and higher depreciation rate during 2009-2010.

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File URL: http://www.nber.org/papers/w16539.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16539.

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Date of creation: Nov 2010
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Handle: RePEc:nbr:nberwo:16539
Note: ITI
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  1. Joshua Aizenman & Gurnain Kaur Pasricha, 2010. "Fiscal fragility: what the past may say about the future," NBER Working Papers 16478, National Bureau of Economic Research, Inc.
  2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
  3. Aizenman, Joshua & Jinjarak, Yothin, 2006. "Globalization and Developing Countries - a Shrinking Tax Base ?," Santa Cruz Department of Economics, Working Paper Series qt8r12k4xr, Department of Economics, UC Santa Cruz.
  4. Aizenman, Joshua & Jinjarak, Yothin, 2010. "De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment," Santa Cruz Department of Economics, Working Paper Series qt6dn0n13t, Department of Economics, UC Santa Cruz.
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