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Author/Editor:
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Ferhan Salman ; Gabriela Dobrescu
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Publication Date:
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February 01, 2011
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Electronic Access:
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Free Full text
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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
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Summary:
Domestic absorption cycles are relevant in assessment and design of fiscal policies. Our cross-country analysis covers 59 advanced and emerging countries for the 1990-2009 period. We show that ignoring domestic absorption cycles leads to biased fiscal stance indicators, for both advanced and emerging economies, by up to 1.5 percent of GDP. The estimates of fiscal policy reaction functions indicate that absorption booms are associated with pro-cyclical fiscal policy. We tackle the endogeneity problem in reactions functions through stripping the cyclical component of the fiscal aggregates. We also find that simple filtering methods in the computation of absorption gaps perform as better as indirect methods of estimating trade balance gaps and stripping of output gaps.
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Order a print copy
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Series:
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Working Paper No. 11/41
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Subject(s):
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Developed countries | Economic growth | Economic models | Emerging markets | Indirect taxation | Revenue sources | Revenues
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Author's Keyword(s):
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fiscal policy | structural fiscal balance | domestic absorption | output gap | fiscal reaction function |
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