Revisiting the Evidence on the Cyclicality of Fiscal Policy across the World
A large and growing literature has argued that industrialized and developing countries behave very differently in relation to their fiscal policy stances over the business cycle. In this paper, the authors provide new evidence on the cyclicality of...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/10/26853952/revisiting-evidence-cyclicality-fiscal-policy-across-world http://hdl.handle.net/10986/25285 |
| Summary: | A large and growing literature has
argued that industrialized and developing countries behave
very differently in relation to their fiscal policy stances
over the business cycle. In this paper, the authors provide
new evidence on the cyclicality of fiscal policy across
industrialized and developing countries. The authors sample
includes 180 countries, of which 134 are developing
countries and 46 are high income countries over the period
1980-2012. The authors follow the methodology of Frankel et
al. (2013) but at the same time introduce three innovations
to the empirical approach. This paper is organized as
follows : After Introduction, Section two discusses issues
associated with the choice of filter to smooth the proxy
variable for fiscal cyclicality while Section three
estimates our own Graduating Class under different filtering
methods and a country-specific approach to split the sample
into two sub-periods. Section four presents an analysis of
how the countries in our sample behave over the business
cycle. Section five discusses our findings on the empirical
determinants of fiscal cyclicality while Section six
explores endogeneity issues. Section 7 presents concluding
remarks confirming earlier findings in the literature on the
causal link between institutional quality and a less
pro-cyclical fiscal stance and suggesting policy directions
that could be useful to countries interested in
strengthening their fiscal positions and becoming better
equipped to adopt counter-cyclical fiscal policies |
|---|