Public Expenditure and Consumption Volatility
Recent estimates of the welfare cost of consumption volatility find that it is significant in developing nations, where it may reach an equivalent of reducing consumption by 10 percent per year. Hence, examining the determinants of consumption vola...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2008/05/9473628/public-expenditure-consumption-volatility http://hdl.handle.net/10986/6692 |
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okr-10986-66922021-04-23T14:02:32Z Public Expenditure and Consumption Volatility Herrera, Santiago Vincent, Bruno AGGREGATE CONSUMPTION ANNUAL % GROWTH AVERAGE GROWTH RATE AVERAGE GROWTH RATES BASE YEAR BENCHMARKS BUSINESS CYCLE CAPITA GROWTH CAPITAL ACCOUNT CAPITAL ACCOUNT OPENNESS CAPITAL MARKETS CONSUMPTION EXPENDITURE CONSUMPTION GROWTH CONSUMPTION SMOOTHING CONSUMPTION SPENDING CONSUMPTION VOLATILITY CONTROL VARIABLES CURRENCY DEPENDENCY RATIO DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCRETIONARY FISCAL POLICY DISCRETIONARY POLICY DOMESTIC FINANCIAL MARKETS DOMESTIC FINANCIAL SECTOR ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC POLICY ELASTICITY EQUITY MARKET EXPLANATORY VARIABLES EXPORTS EXTERNAL FINANCING FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL DEVELOPMENT FINANCIAL INTERMEDIARIES FINANCIAL LIBERALIZATION FINANCIAL OPENNESS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL VARIABLES FISCAL DISCIPLINE FISCAL POLICY FISCAL POSITION FIXED EFFECTS FLUCTUATIONS GDP GDP DEFLATOR GDP PER CAPITA GLOBAL ECONOMY GOVERNMENT CONSUMPTION GOVERNMENT SPENDING GROWTH RATES GROWTH VOLATILITY HIGH INCOME HIGH-INCOME COUNTRIES HIGHER VOLATILITY HOUSEHOLD BUDGETS IMPORTS INCOME INCOME TAX INCOMPLETE MARKETS INFLATION INSTITUTIONAL ENVIRONMENT INSTRUMENTAL VARIABLE INSTRUMENTAL VARIABLES INTERACTION TERM INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL MONEY LABOR SUPPLY LATIN AMERICAN LEVEL OF CONFIDENCE LEVEL OF INCOME LIBERALIZATION LOW INCOME LOW INCOME COUNTRIES MACROECONOMIC STABILITY MACROECONOMIC VOLATILITY MARKET INFORMATION MIDDLE INCOME MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS OIL PRICES OPEN CAPITAL ACCOUNT OPEN ECONOMIES OPEN ECONOMY OUTPUT OUTPUT VOLATILITY POLITICAL ECONOMY POLITICAL SYSTEM POLITICAL SYSTEMS PRIVATE CONSUMPTION PUBLIC EXPENDITURE PUBLIC POLICY PUBLIC SPENDING REAL GDP RISK AVERSE RISK AVERSION RISK PREMIUM SIDE EFFECTS SMOOTHING CONSUMPTION STANDARD DEVIATION STANDARD ERRORS STEADY STATE SUPPLY SIDE SUPPLY-SIDE TAX TAX RATE TRADE VOLATILITY TRINIDAD AND TOBAGO UNCERTAINTY URBANIZATION VOLATILITIES VOLATILITY WEALTH Recent estimates of the welfare cost of consumption volatility find that it is significant in developing nations, where it may reach an equivalent of reducing consumption by 10 percent per year. Hence, examining the determinants of consumption volatility is of utmost relevance. Based on cross-country data for the period 1960-2005, the paper explains consumption volatility using three sets of variables: one refers to the volatility of income and the persistence of income shocks; the second set of variables refers to policy volatility, considering the volatility of public spending and the size of government; while the third set captures the ability of agents to smooth shocks, and includes the depth of the domestic financial markets as well as the degree of integration to international capital markets. To allow for potential endogenous regressors, in particular the volatility of fiscal policy and the size of government, the system is estimated using the instrumental variables method. The results indicate that, besides income volatility, the variables with the largest and most robust impact on consumption volatility are government size and the volatility of public spending. Results also show that deeper and more stable domestic financial markets reduce the volatility of consumption, and that more integrated financial markets to the international capital markets are associated with lower volatility of consumption. 2012-05-30T19:23:55Z 2012-05-30T19:23:55Z 2008-05 http://documents.worldbank.org/curated/en/2008/05/9473628/public-expenditure-consumption-volatility http://hdl.handle.net/10986/6692 English Policy Research Working Paper No. 4633 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
AGGREGATE CONSUMPTION ANNUAL % GROWTH AVERAGE GROWTH RATE AVERAGE GROWTH RATES BASE YEAR BENCHMARKS BUSINESS CYCLE CAPITA GROWTH CAPITAL ACCOUNT CAPITAL ACCOUNT OPENNESS CAPITAL MARKETS CONSUMPTION EXPENDITURE CONSUMPTION GROWTH CONSUMPTION SMOOTHING CONSUMPTION SPENDING CONSUMPTION VOLATILITY CONTROL VARIABLES CURRENCY DEPENDENCY RATIO DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCRETIONARY FISCAL POLICY DISCRETIONARY POLICY DOMESTIC FINANCIAL MARKETS DOMESTIC FINANCIAL SECTOR ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC POLICY ELASTICITY EQUITY MARKET EXPLANATORY VARIABLES EXPORTS EXTERNAL FINANCING FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL DEVELOPMENT FINANCIAL INTERMEDIARIES FINANCIAL LIBERALIZATION FINANCIAL OPENNESS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL VARIABLES FISCAL DISCIPLINE FISCAL POLICY FISCAL POSITION FIXED EFFECTS FLUCTUATIONS GDP GDP DEFLATOR GDP PER CAPITA GLOBAL ECONOMY GOVERNMENT CONSUMPTION GOVERNMENT SPENDING GROWTH RATES GROWTH VOLATILITY HIGH INCOME HIGH-INCOME COUNTRIES HIGHER VOLATILITY HOUSEHOLD BUDGETS IMPORTS INCOME INCOME TAX INCOMPLETE MARKETS INFLATION INSTITUTIONAL ENVIRONMENT INSTRUMENTAL VARIABLE INSTRUMENTAL VARIABLES INTERACTION TERM INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL MONEY LABOR SUPPLY LATIN AMERICAN LEVEL OF CONFIDENCE LEVEL OF INCOME LIBERALIZATION LOW INCOME LOW INCOME COUNTRIES MACROECONOMIC STABILITY MACROECONOMIC VOLATILITY MARKET INFORMATION MIDDLE INCOME MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS OIL PRICES OPEN CAPITAL ACCOUNT OPEN ECONOMIES OPEN ECONOMY OUTPUT OUTPUT VOLATILITY POLITICAL ECONOMY POLITICAL SYSTEM POLITICAL SYSTEMS PRIVATE CONSUMPTION PUBLIC EXPENDITURE PUBLIC POLICY PUBLIC SPENDING REAL GDP RISK AVERSE RISK AVERSION RISK PREMIUM SIDE EFFECTS SMOOTHING CONSUMPTION STANDARD DEVIATION STANDARD ERRORS STEADY STATE SUPPLY SIDE SUPPLY-SIDE TAX TAX RATE TRADE VOLATILITY TRINIDAD AND TOBAGO UNCERTAINTY URBANIZATION VOLATILITIES VOLATILITY WEALTH |
| spellingShingle |
AGGREGATE CONSUMPTION ANNUAL % GROWTH AVERAGE GROWTH RATE AVERAGE GROWTH RATES BASE YEAR BENCHMARKS BUSINESS CYCLE CAPITA GROWTH CAPITAL ACCOUNT CAPITAL ACCOUNT OPENNESS CAPITAL MARKETS CONSUMPTION EXPENDITURE CONSUMPTION GROWTH CONSUMPTION SMOOTHING CONSUMPTION SPENDING CONSUMPTION VOLATILITY CONTROL VARIABLES CURRENCY DEPENDENCY RATIO DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISCRETIONARY FISCAL POLICY DISCRETIONARY POLICY DOMESTIC FINANCIAL MARKETS DOMESTIC FINANCIAL SECTOR ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC POLICY ELASTICITY EQUITY MARKET EXPLANATORY VARIABLES EXPORTS EXTERNAL FINANCING FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL DEVELOPMENT FINANCIAL INTERMEDIARIES FINANCIAL LIBERALIZATION FINANCIAL OPENNESS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL VARIABLES FISCAL DISCIPLINE FISCAL POLICY FISCAL POSITION FIXED EFFECTS FLUCTUATIONS GDP GDP DEFLATOR GDP PER CAPITA GLOBAL ECONOMY GOVERNMENT CONSUMPTION GOVERNMENT SPENDING GROWTH RATES GROWTH VOLATILITY HIGH INCOME HIGH-INCOME COUNTRIES HIGHER VOLATILITY HOUSEHOLD BUDGETS IMPORTS INCOME INCOME TAX INCOMPLETE MARKETS INFLATION INSTITUTIONAL ENVIRONMENT INSTRUMENTAL VARIABLE INSTRUMENTAL VARIABLES INTERACTION TERM INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL MONEY LABOR SUPPLY LATIN AMERICAN LEVEL OF CONFIDENCE LEVEL OF INCOME LIBERALIZATION LOW INCOME LOW INCOME COUNTRIES MACROECONOMIC STABILITY MACROECONOMIC VOLATILITY MARKET INFORMATION MIDDLE INCOME MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS OIL PRICES OPEN CAPITAL ACCOUNT OPEN ECONOMIES OPEN ECONOMY OUTPUT OUTPUT VOLATILITY POLITICAL ECONOMY POLITICAL SYSTEM POLITICAL SYSTEMS PRIVATE CONSUMPTION PUBLIC EXPENDITURE PUBLIC POLICY PUBLIC SPENDING REAL GDP RISK AVERSE RISK AVERSION RISK PREMIUM SIDE EFFECTS SMOOTHING CONSUMPTION STANDARD DEVIATION STANDARD ERRORS STEADY STATE SUPPLY SIDE SUPPLY-SIDE TAX TAX RATE TRADE VOLATILITY TRINIDAD AND TOBAGO UNCERTAINTY URBANIZATION VOLATILITIES VOLATILITY WEALTH Herrera, Santiago Vincent, Bruno Public Expenditure and Consumption Volatility |
| relation |
Policy Research Working Paper No. 4633 |
| description |
Recent estimates of the welfare cost of
consumption volatility find that it is significant in
developing nations, where it may reach an equivalent of
reducing consumption by 10 percent per year. Hence,
examining the determinants of consumption volatility is of
utmost relevance. Based on cross-country data for the period
1960-2005, the paper explains consumption volatility using
three sets of variables: one refers to the volatility of
income and the persistence of income shocks; the second set
of variables refers to policy volatility, considering the
volatility of public spending and the size of government;
while the third set captures the ability of agents to smooth
shocks, and includes the depth of the domestic financial
markets as well as the degree of integration to
international capital markets. To allow for potential
endogenous regressors, in particular the volatility of
fiscal policy and the size of government, the system is
estimated using the instrumental variables method. The
results indicate that, besides income volatility, the
variables with the largest and most robust impact on
consumption volatility are government size and the
volatility of public spending. Results also show that deeper
and more stable domestic financial markets reduce the
volatility of consumption, and that more integrated
financial markets to the international capital markets are
associated with lower volatility of consumption. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Herrera, Santiago Vincent, Bruno |
| author_facet |
Herrera, Santiago Vincent, Bruno |
| author_sort |
Herrera, Santiago |
| title |
Public Expenditure and Consumption Volatility |
| title_short |
Public Expenditure and Consumption Volatility |
| title_full |
Public Expenditure and Consumption Volatility |
| title_fullStr |
Public Expenditure and Consumption Volatility |
| title_full_unstemmed |
Public Expenditure and Consumption Volatility |
| title_sort |
public expenditure and consumption volatility |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2008/05/9473628/public-expenditure-consumption-volatility http://hdl.handle.net/10986/6692 |
| _version_ |
1764400681127510016 |