IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Fiscal policy and economic stability: Does PIGS stand for procyclicality in government spending?

  • Claeys Peter
  • Maravalle Alessandro

The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza (1991), and introduce the effect of fiscal policy decisions that change over the cycle. We calibrate the model on data for Ireland, and simulate the effect of different spending policies in response to supply shocks. Procyclical fiscal policy distorts intertemporal allocation decisions. Temporary spending boosts in booms spur investment, and hence the need for external finance, and so generates very volatile cycles in investment and the current account. This economic instability is also harmful for the steady state level of output. Our model is able to replicate the relation between the degree of cyclicality of fiscal policy, and the volatility of consumption, investment and the current account observed in OECD countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://wp.comunite.it/data/wp_no_90_2011.pdf
Download Restriction: no

Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0090.

as
in new window

Length:
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:ter:wpaper:0090
Contact details of provider: Web page: http://wp.comunite.it/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, 09.
  2. Peter Claeys & Fabio Manca, 2009. "A missing spatial link in institutional quality," IREA Working Papers 200911, University of Barcelona, Research Institute of Applied Economics, revised Jun 2009.
  3. Raul Ramos & Jordi Suriñach & Manuel Artís, 2009. "Human capital spillovers, productivity and regional convergence in Spain," Working Papers XREAP2009-15, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2009.
  4. António Afonso & Peter Claeys & Ricardo M. Sousa, 2009. "Fiscal Regime Shifts in Portugal," NIPE Working Papers 25/2009, NIPE - Universidade do Minho.
  5. Daniel Albalate & Germa Bel, 2007. "Regulating Concessions of Toll Motorways, An Empirical Study on Fixed vs. Variable Term Contracts," IREA Working Papers 200706, University of Barcelona, Research Institute of Applied Economics, revised Mar 2007.
  6. Manuel Artís & Raul Ramos & Jordi Suriñach, 2006. "Job losses, outsourcing and relocation: Empirical evidence using microdata," Working Papers CREAP2006-05, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2006.
  7. Josep Carrion-i-Silvestre & Vicente German-Soto, 2009. "Panel data stochastic convergence analysis of the Mexican regions," Empirical Economics, Springer, vol. 37(2), pages 303-327, October.
  8. Suriñach,Jordi & Duque,Juan Carlos & Royuela, Vicente, 2007. "Patrones De Publicación Internacional (Ssci) De Los Autores Afi liados A Universidades Españolas.En El Ámbito Económicoempresarial(1994-2004)," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 25, pages 277-310, Abril.
  9. Isabel Cortés-Jiménez & Manuela Pulina & Carme Riera i Prunera & Manuel Artís, 2009. "Tourism and Exports as a means of Growth," IREA Working Papers 200910, University of Barcelona, Research Institute of Applied Economics, revised May 2009.
  10. Claeys, Peter, 2007. "Sustainability of EU Fiscal Policies: a Panel Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 112-127.
  11. Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers 3096, C.E.P.R. Discussion Papers.
  12. Ramos, Raul & Surinach, Jordi & Artís, Manuel, 2009. "Regional Economic Growth and Human Capital: The Role of Overeducation," IZA Discussion Papers 4453, Institute for the Study of Labor (IZA).
  13. Vicente Royuela & Diona Lambiri & Bianca Biagi, 2006. "Economía Urbana y calidad de vida. Una revisión del estado del conocimiento en España," Working Papers CREAP2006-13, Xarxa de Referència en Economia Aplicada (XREAP), revised Dec 2006.
  14. Xavier Fageda & Eva Fiz, 2010. "Ownership, Incentives and Hospitals," IREA Working Papers 201012, University of Barcelona, Research Institute of Applied Economics, revised Sep 2010.
  15. Alessandro Turrini, 2008. "Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure," European Economy - Economic Papers 323, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  16. Daniel Albalate & Germa Bel & Xavier Fageda, 2007. "Privatization and regulation of toll motorways in europe," IREA Working Papers 200704, University of Barcelona, Research Institute of Applied Economics, revised Mar 2007.
  17. Vicente Royuela & Jordi Suriñach, 2009. "Quality in work and aggregate productivity," IREA Working Papers 200901, University of Barcelona, Research Institute of Applied Economics, revised Jan 2009.
  18. Raul Ramos & Juan Carlos Duque & Jordi Suriñach, 2009. "Is The Wage Curve Formal Or Informal? Evidence For Colombia," IREA Working Papers 200918, University of Barcelona, Research Institute of Applied Economics, revised Jul 2009.
  19. Fabio Manca, 2009. "Appropriate IPRs, Human Capital Composition and Economic Growth," IREA Working Papers 200914, University of Barcelona, Research Institute of Applied Economics, revised Jun 2009.
  20. Marta Aloi & Teresa Lloyd-Braga & Hans Jørgen Whitta-Jacobsen, 2002. "Endogenous Business Cycles and Systematic Stabilization Policy," EPRU Working Paper Series 02-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2002.
  21. Daniel Albalate & Germa Bel, 2008. "Motorways, tolls and road safety.Evidence from European Panel Data," IREA Working Papers 200802, University of Barcelona, Research Institute of Applied Economics, revised Feb 2008.
  22. Robert G. King & Sergio Rebelo, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," NBER Working Papers 3338, National Bureau of Economic Research, Inc.
  23. Aghion, Philippe & Hemous, David & Kharroubi, Enisse, 2014. "Credit Constraints, Cyclical Fiscal Policy and Industry Growth," Scholarly Articles 12585130, Harvard University Department of Economics.
  24. Germà Bel & Elbert Dijkgraaf & Xavier Fageda & Raymond Gradus, 2008. "Similar problems, different solutions: Comparing refuse collection in the Netherlands and Spain," IREA Working Papers 200815, University of Barcelona, Research Institute of Applied Economics, revised Nov 2008.
  25. Francesca Arnaboldi & Peter Claeys, 2008. "Internet Banking in Europe: a comparative analysis," IREA Working Papers 200811, University of Barcelona, Research Institute of Applied Economics, revised Sep 2008.
  26. Paolo Manasse, 2006. "Procyclical Fiscal Policy; Shocks, Rules, and Institutions: A View From Mars," IMF Working Papers 06/27, International Monetary Fund.
  27. Jordi Perdiguero-García, 2010. "“Symmetric or asymmetric gasoline prices? A metaanalysis approach”," IREA Working Papers 201013, University of Barcelona, Research Institute of Applied Economics, revised Nov 2010.
  28. Daniel Albalate & Germà Bel, 2009. "Factors explaining urban transport systems in large European cities: A cross-sectional approach," IREA Working Papers 200905, University of Barcelona, Research Institute of Applied Economics, revised Apr 2009.
  29. Andres, Javier & Domenech, Rafael, 2006. "Automatic stabilizers, fiscal rules and macroeconomic stability," European Economic Review, Elsevier, vol. 50(6), pages 1487-1506, August.
  30. Juan Carlos Duque & Raúl Ramos & Vicente Royuela, 2011. "Research networks and scientific production in Economics: The recent Spanish Experience," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT.
  31. Peter Claeys & Raúl Ramos & Jordi Suriñach, 2008. "Fiscal sustainability across government tiers," International Economics and Economic Policy, Springer, vol. 5(1), pages 139-163, July.
  32. Vicente Royuel & Rosina Moreno & Esther Vaya, 2007. "Is the influence of quality of life on urban growth non-stationary in space? A case study of Barcelona," IREA Working Papers 200703, University of Barcelona, Research Institute of Applied Economics, revised Feb 2007.
  33. Fabio Manca, 2009. "Human Capital Composition and Economic Growth at a Regional Level," IREA Working Papers 200913, University of Barcelona, Research Institute of Applied Economics, revised Jun 2009.
  34. Luca Sessa & Libero Monteforte & Lorenzo Forni, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," 2007 Meeting Papers 352, Society for Economic Dynamics.
  35. Rafael Domenech & Javier Andres, 2005. "Fiscal Rules and Macroeconomic Stability," Working Papers 0501, International Economics Institute, University of Valencia, revised Nov 2005.
  36. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," NBER Technical Working Papers 0282, National Bureau of Economic Research, Inc.
  37. Julia Darby & Jacques Melitz, 2008. "Social spending and automatic stabilizers in the OECD," Economic Policy, CEPR;CES;MSH, vol. 23, pages 715-756, October.
  38. Vicente Royuela & Miguel Vargas, 2007. "Defining housing market areas using commuting and migration algorithms.Catalonia (Spain) as an applied case study," IREA Working Papers 200707, University of Barcelona, Research Institute of Applied Economics, revised Apr 2007.
  39. Vicente Royuela & Gustavo Adolfo García, 2010. "Economic and social convergence in Colombia," IREA Working Papers 201014, University of Barcelona, Research Institute of Applied Economics, revised Sep 2010.
  40. Jaejoon Woo, 2009. "Why Do More Polarized Countries Run More Procyclical Fiscal Policy?," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 850-870, November.
  41. Vicente Royuela & Manuel Sanchis, 2010. "La reforma de la contratación en el mercado de trabajo: entre la flexibilidad y la seguridad," IREA Working Papers 201006, University of Barcelona, Research Institute of Applied Economics, revised Mar 2010.
  42. Juan Carlos Duque & Raul Ramos & Jordi Suriñach, 2006. "Supervised regionalization methods, a survey," IREA Working Papers 200608, University of Barcelona, Research Institute of Applied Economics, revised Dec 2006.
  43. Zvi Hercowitz & Michel Strawczynski, 2004. "Cyclical Ratcheting in Government Spending: Evidence from the OECD," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 353-361, February.
  44. Montserrat Guillen & Jens Perch Nielsen & Tomas Scheike & Ana Maria Perez-Marin, 2006. "Time-varying effects when analysing customer lifetime duration, application to the insurance market," IREA Working Papers 200604, University of Barcelona, Research Institute of Applied Economics, revised Dec 2006.
  45. 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.
  46. Syed A. Basher & Josep Lluís Carrion-i-Silvestre, 2007. "Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence," IREA Working Papers 200710, University of Barcelona, Research Institute of Applied Economics, revised May 2007.
  47. Malley, Jim & Philippopoulos, Apostolis & Woitek, Ulrich, 2009. "To react or not? Technology shocks, fiscal policy and welfare in the EU-3," European Economic Review, Elsevier, vol. 53(6), pages 689-714, August.
  48. Vicente Royuela & Jordi Lopez-Tamayo & Jordi Suriñach, 2007. "The institutional vs. the academic definition of the quality of work life. What is the focus of the European Commission?," IREA Working Papers 200713, University of Barcelona, Research Institute of Applied Economics, revised Jul 2007.
  49. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  50. Manca, Fabio, 2010. "Technology catch-up and the role of institutions," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1041-1053, December.
  51. Daniel Albalate & Germa Bel, 2008. "Shaping urban traffic patterns through congestion charging: What factors drive success or failure?," IREA Working Papers 200801, University of Barcelona, Research Institute of Applied Economics, revised Jan 2008.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ter:wpaper:0090. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Di Bartolomeo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.