The Fiscal Smile : The Effectiveness and Limits of Fiscal Stabilizers

Author/Editor:

Maria Antoinette Silgoner ; Jesús Crespo-Cuaresma ; Gerhard Reitschuler

Publication Date:

September 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We study the smoothing impact of fiscal stabilizers (proxied by government expenditures or revenues) on business cycle volatility for a panel of EU countries in the period 1970-99. The results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels. We present evidence that for government expenditure ratios exceeding an estimated value of about 38 percent, a further expansion in the size of the government could actually lead to an increase in cyclical volatility. This may call for a reconsideration of the use of fiscal stabilizers for business cycle smoothing.

Series:

Working Paper No. 03/182

Subject:

English

Publication Date:

September 1, 2003

ISBN/ISSN:

9781451859287/1018-5941

Stock No:

WPIEA1822003

Format:

Paper

Pages:

30

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