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Fiscal Policy Responsiveness, Persistence, and Discretion

  • António Afonso
  • Luca Agnello
  • Davide Furceri

In this working paper, we decompose fiscal policy in three components: i) responsiveness, ii) persistence and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more persistent than responding to output variations. We also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence, suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence. Réaction au cycle, persistance et effet discrétionnaire de la politique budgétaire Nous décomposons la politique budgétaire en trois composantes : i) réponse, ii) persistance et iii) effet discrétionnaire. Utilisant un échantillon de 132 pays, nos résultats montrent que la politique budgétaire tend à être plus persistante qu’elle ne répond aux variations du PIB. Nous trouvons également qu’alors que l’effet des covariations entre pays affecte positivement (négativement) l’effet discrétionnaire, il a un effet négatif (positif) sur la persistance. Cela suggère que les pays dotés d’une forte persistance ont un effet discrétionnaire plus faible et vice versa. En particulier, alors que la taille du gouvernement, la taille du pays et le revenu ont des effets négatifs sur la composante discrétionnaire de la politique budgétaire, ils tendent à augmenter la persistance de la politique budgétaire.

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File URL: http://dx.doi.org/10.1787/228864226783
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 659.

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Date of creation: 17 Dec 2008
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Handle: RePEc:oec:ecoaaa:659-en
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  1. Gadi Barlevy, 2004. "The Cost of Business Cycles and the Benefits of Stabilization: A Survey," NBER Working Papers 10926, National Bureau of Economic Research, Inc.
  2. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
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  4. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
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  7. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
  8. Antonio Fatás & Ilian Mihov, 2013. "Policy Volatility, Institutions, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 362-376, May.
  9. Davide Furceri, 2007. "Is Government Expenditure Volatility Harmful for Growth? A Cross-Country Analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 103-120, 03.
  10. Davide Furceri, 2010. "Long-run growth and volatility: which source really matters?," Applied Economics, Taylor & Francis Journals, vol. 42(15), pages 1865-1874.
  11. Torsten Persson, 2001. "Do Political Institutions Shape Economic Policy?," NBER Working Papers 8214, National Bureau of Economic Research, Inc.
  12. Sorensen, B.E. & Wu, L. & Yosha, O., 1999. "Output Fluctuations and Fiscal Policy: U.S. State and Local Governments 1978-1994," Papers 22-99, Tel Aviv.
  13. Jean Imbs, 2006. "Growth and Volatility," Swiss Finance Institute Research Paper Series 06-09, Swiss Finance Institute.
  14. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  15. António Afonso, 2005. "Ricardian Fiscal Regimes in the European Union," Working Papers Department of Economics 2005/18, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  16. Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
  17. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  18. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  19. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
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