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Cyclical Behavior of Fiscal Policy in the Western Balkans

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  • Sabaj, Ernil

Abstract

This paper studies the cyclical behavior of fiscal policy in the Western Balkans region, investigating empirically the fiscal policy response to business cycles for the period 2003-2016. Although there is a large empirical literature which has found that fiscal policy in developing countries is pro-cyclical, not many studies are found on the Western Balkans region, with only a few done at country level. We apply the Hodrick-Prescott (HP) filter and other filters to measure the potential output and output gap for each of the respective Western Balkans countries. By performing country regressions we find that one of the main determinants fiscal pro-cyclicality in the WB6 region is the quality of the government. We conduct a series of structural vector auto-regressions (SVAR) for each of the countries in an attempt to obtain further evidence on the reaction of fiscal policy to the business cycle.

Suggested Citation

  • Sabaj, Ernil, 2018. "Cyclical Behavior of Fiscal Policy in the Western Balkans," MPRA Paper 84279, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84279
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy; Business Cycles; Pro-cyclicality; Counter-cyclicality; Western Balkans;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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