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Fiscal policy volatility and growth in emerging markets and developing economies

Author

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  • Arroyo Marioli, Francisco
  • Fatas, Antonio
  • Vasishtha, Garima

Abstract

This paper studies the volatility of fiscal policy in a large sample of countries with a focus on emerging markets and developing economies and commodity exporters over 1990–2021. The findings show that fiscal policy has been more volatile in emerging markets and developing economies than in advanced economies, and in commodity exporters relative to non-commodity exporters over this period. The degree of commodity dependence, and institutional and policy variables can explain a large percentage of the cross-country variation in volatility. The existence of fiscal rules, a more liberalized capital account, and more flexible exchange rates are all associated with lower fiscal policy volatility. The paper also shows the negative macroeconomic consequences of this additional volatility on economic growth, finding that, over a 30-year period, it can explain 8 percent of the income gap between the emerging markets and developing economies and advanced economies in the sample.

Suggested Citation

  • Arroyo Marioli, Francisco & Fatas, Antonio & Vasishtha, Garima, 2024. "Fiscal policy volatility and growth in emerging markets and developing economies," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 758-777.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:758-777
    DOI: 10.1016/j.iref.2024.01.041
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    More about this item

    Keywords

    Fiscal policy; Volatility; Growth; Emerging markets; Commodity exporters;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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