Deep Roots of Fiscal Behavior

March 12, 2014

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Serhan Cevik, and Katerina Teksoz. Deep Roots of Fiscal Behavior, (USA: International Monetary Fund, 2014) accessed September 20, 2024

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

This paper investigates the determinants of fiscal policy behavior and its time-varying volatility, using panel data for a broad set of advanced and emerging market economies during the period 1990–2012. The empirical results show that discretionary fiscal policy is influenced by policy inertia, the level of public debt, and the output gap in both advanced and emerging market economies. In addition, the paper finds that macro-financial factors—such as real exchange rate, financial development, interest rates, asset prices, and natural resource rents—and demographic and institutional factors—such as the old-age dependency ratio, the quality of institutions, and policy anchors such as fiscal rules and IMF-supported stabilization programs—tend to have a significant effect on fiscal policy behavior. The results also indicate that higher government debt leads to more volatile fiscal behavior, while fiscal rules and higher institutional quality reduce the volatility of fiscal policy over time.

Subject: Emerging and frontier financial markets, Estimation techniques, Fiscal policy, Fiscal stance, Public debt

Keywords: Discretionary fiscal policy, Fiscal policy behavior, One-step GMM estimation, Reaction function, System GMM estimator, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/045
Stock No:

WPIEA2014045
ISBN:

9781475516111
ISSN:

1018-5941

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