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The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD

  • Philip R. Lane

This paper addresses the topic of cyclicality in fiscal policy. In particular, we show that the level of cyclicality varies across spending categories and across OECD countries. In line with leading theories of fiscal cyclicality, we show that countries with volatile output and dispersed political power are the most likely to run procyclical fiscal policies. Wage government consumption is highlighted as the most important channel by which these variables affect fiscal cyclicality

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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 20022.

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Date of creation: 2002
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Handle: RePEc:tcd:tcduee:20022
Contact details of provider: Postal: Trinity College, Dublin 2
Phone: (+ 353 1) 6081325
Fax: 6772503
Web page: http://www.tcd.ie/Economics/

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  1. Tornell, Aaron & Lane, Philip R., 1998. "Are windfalls a curse?: A non-representative agent model of the current account," Journal of International Economics, Elsevier, vol. 44(1), pages 83-112, February.
  2. Michael Gavin & Ricardo Hausmann & Roberto Perotti & Ernesto Talvi, 1996. "Managing Fiscal Policy in Latin America and the Caribbean: Volatility, Procyclicality, and Limited Creditworthiness," IDB Publications (Working Papers) 6797, Inter-American Development Bank.
  3. Arreaza, A. & Sorensen, B.E. & Yosha, O., 1997. "Consumption Smoothing Through Fiscal Policy in OECD and EU Countries," Papers 37-97, Tel Aviv.
  4. Aart Kraay & Jaume Ventura, 2007. "Comparative Advantage and the Cross-section of Business Cycles," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1300-1333, December.
  5. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1999. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 103-134 National Bureau of Economic Research, Inc.
  6. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  7. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  8. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
  9. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  10. James M. Poterba & Jürgen von Hagen, 1999. "Fiscal Institutions and Fiscal Performance," NBER Books, National Bureau of Economic Research, Inc, number pote99-1, December.
  11. Aart Kray & Jaume Ventura, 2001. "Comparative advantage and the cross-section of business cycles," Economics Working Papers 845, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Lane, Philip R & Tornell, Aaron, 1996. " Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-41, June.
  13. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  14. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, March.
  15. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  16. Lane, P.R. & Tornell, A., 1998. "Why Aren't Savings Rates in Latin America Procyclical?," Papers 642, Harvard - Institute for International Development.
  17. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  18. Svensson, Jakob, 1997. "Collusion Among Interest Grops: Foreign Aid and Rent Dissipation," Seminar Papers 610, Stockholm University, Institute for International Economic Studies.
  19. Tamim Bayoumi & Barry Eichengreen, 1995. "Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 32-48, March.
  20. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  21. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  22. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  23. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  24. Barry J. Eichengreen & Tamim Bayoumi, 1994. "Restraining Yourself; Fiscal Rules and Stabilization," IMF Working Papers 94/82, International Monetary Fund.
  25. Hercowitz, Z. & Strawczynski, M., 1999. "Cyclical Bias in Government Spending: Evidence from the OECD," Papers 6-99, Tel Aviv.
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