the cyclicality of international public sector borrowing in developing countries does the lender matter abstract the paper shows that international government borrowing from multilateral development banks is countercyclical while international government borrowing from private sector lenders is procyclical the countercyclicality of multilateral development bank mdb lending is mostly driven by the behavior of the world bank borrowing from regional development banks tends to be acyclical the paper also shows that mdb lending to latin america and east asia is more countercyclical than mdb lending to other regions private sector lending is instead procyclical in all developing regions while the cyclicality of mdb lending does not depend on domestic or international conditions private lending becomes particularly procyclical in periods of limited global capital flows by focusing on both borrower and lender heterogeneity the paper shows that the cyclical properties of international government debt are mostly driven by credit supply shocks demand factors appear to be less important drivers of procyclical international government borrowing the focus on supply and demand factors is different from the traditional push and pull classification as push and pull factors could affect both the demand and the supply of international government debt

the futile quest for a grand explanation of long run government expenditure this paper carries out a critical reappraisal of the two contending theories purporting to explain long run government spending wagner s law and different variants of the ratchet effect we analyze data spanning from the early 19 th century until the present day in sweden and the united kingdom hence in contrast to previous studies we evaluate the validity of wagner s law and the ratchet effect hypothesis over a very long time period starting at the beginning of industrialization cointegration analysis is used to investigate the long run relationships between government expenditure and gdp focusing on sub periods and structural breaks moreover we test the ratchet effect hypothesis by estimating models which allow for asymmetric adjustment according to our main results wagner s law does not hold in the long run although the data are consistent with wagner s law between roughly 1860 and the mid 1970s this can be traced to the formation of the modern public sector including the introduction of public education health care and so forth yet wagner s law did not hold during the initial industrialization phase before 1860 and in recent periods gdp only affects the government spending share when we control for population age structure finally we find some evidence of asymmetric adjustment in the uk particularly in the post wwii period however the ratchet effect is not a general cause of the growth of government spending

public opinion and foreign aid cuts in economic crises economic crises generally lead to reductions in foreign aid however the widely held view that budgetary constraints caused by economic crises reduce aid is inaccurate because donor government outlays actually tend to increase we develop an argument that aid cuts occur because voters place a lower priority on aid during economic downturns and politicians respond by cutting aid using data from eurobarometer we demonstrate that economic downturns lead to reduced public support for helping the poor abroad these findings are robust across a large number of alternative specifications our findings have implications for how advocates may prevent aid reductions during economic recessions

commodity windfalls democracy and external debt we examine the effects that windfalls from international commodity price booms have on external debt in a panel of 93 countries during the period 1970 2007 our main finding is that increases in the international prices of exported commodity goods lead to a significant reduction in the level of external debt in democracies but to no significant reduction in the level of external debt in autocracies to explain this finding we show that in autocracies commodity windfalls lead to a statistically significant and quantitatively large increase in government consumption expenditures in democracies government consumption expenditures did not increase significantl

optimal simple monetary and fiscal rules under limited asset market participation the combination of limited asset market participation and consumption habits generates indeterminacy for empirically plausible calibrations of a business cycle model characterized by price and nominal wage rigidities equilibrium determinacy is restored by demand management policies based on simple fiscal rules in this regard fiscal control of nominal income growth is particularly effective in addition the complementarity between the taylor rule and the fiscal feedback on nominal income growth produces relatively large welfare gains limiting both aggregate and intragroup volatilities

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

keeping the public purse an experiment in windfalls taxes and the incentives to restrain government it is widely believed that natural resource wealth foreign aid and other types of windfall revenue increase corruption and undermine accountability a predominant claim in political science is that windfalls free politicians from the need to tax resulting in a more politically quiescent population yet there is surprisingly little evidence to substantiate not only whether taxation has this eect but also why i use novel experiments to provide the rst micro level causal test of claims that 1 taxes motivate citizens more than windfalls to hold politicians accountable and 2 citizens care more about wasted revenue when they pay taxes the experiments were embedded in a public awareness campaign conducted with 1 863 citizens in a resource rich district in indonesia the results measured through a survey and a postcard campaign show that taxes made participants more willing to monitor government and hold politicians accountable than windfalls primarily because of a stronger sense of ownership over public funds yet when better information on government spending is made available the windfall group proved just as intolerant of misspent revenue these ndings have important implications for understanding not only how taxation motivates political action but also how revenue shapes the ways in which citizens acquire and process information on government spending

average tax rate cyclicality in oecd countries a test of three fiscal policy theories this paper investigates the cyclical properties of the average effective tax rate in 26 oecd countries over 1965 2003 in order to test the validity of three theories of fiscal policy i the standard keynesian theory which recommends that tax policy should be counter cyclical ii the tax smoothing hypothesis which implies that changes in gdp should be uncorrelated with tax rates and iii the positive theory of battaglini and coate 2008 which predicts that the average tax rate should be negatively correlated with gdp our main finding is that the correlations of tax rates with cyclical gdp are generally quite small and statistically indistinguishable from zero this finding is quite robust and is more consistent with the implications of the tax smoothing hypothesis than either the recommendations of the standard keynesian model or the predictions of battaglini and coate s theory

tax base variability and procyclical fiscal policy in developing countries abstract based on a sample of 56 countries we show that fiscal policy in the g7 countries appears to be acyclical while fiscal policy in developing countries is procyclical i e fiscal policy is expansionary in good times and contractionary in bad times to explain this puzzle we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending given this distortion a government that faces large fluctuations in the tax base as is the case for developing countries will find it optimal to run a procyclical fiscal policy

intergovernmental transfers and procyclical public spending this paper tests the predictions that i sub central government expenditures are procyclical and ii sub central government expenditures are likely to be more procyclical than central government spending the predictions are based on the importance of voracity effects and on the proposition that they are systematically more pervasive if spending is financed by intergovernmental transfers evidence from 23 oecd countries between 1995 and 2006 indicates that sub central government spending is more procyclical than central government expenditure

fiscal policy and monetary integration in europe fiscal policy economists policy makers and the media often argue that the maastricht treaty and the stability and growth pact make it difficult for governments of emu countries to stabilize their economies with appropriate fiscal policy and to provide adequate public investment our empirical analysis offers little support to this view discretionary budget deficits have actually become more counter cyclical in emu countries after the maastricht treaty as well as in the other eu and non eu industrialized countries we study and while public investment has declined recently in emu countries a similar tendency is apparent in other countries and started well before the maastricht treaty was signed jordi gali and roberto perotti

fiscal policy over the real business cycle a positive theory this paper presents a political economy theory of the behavior of fiscal policy over the business cycle the theory predicts that in both booms and recessions fiscal policies are set so that the marginal cost of public funds obeys a submartingale in the short run fiscal policy can be pro cyclical with government debt spiking up upon entering a boom however in the long run fiscal policy is counter cyclical with debt increasing in recessions and decreasing in booms government spending increases in booms and decreases during recessions while tax rates decrease during booms and increase in recessions data on tax rates from the g7 countries supports the submartingale prediction and the correlations between fiscal policy variables and national income implied by the theory are consistent with much of the existing evidence from the u s and other countries

growth friendly fiscal rules safeguarding public investment from budget cuts through fiscal rule design abstract we study patterns of public investment behavior during fiscal consolidations in seventy five advanced and emerging economies during 1990 2018 and find that results differ significantly depending on fiscal rule design fiscal rules can be flexible meaning that they include mechanisms to accommodate exogenous shocks e g cyclically adjusted fiscal targets well defined escape clauses and differential treatment of investment expenditures or rigid meaning they establish numerical limits on fiscal targets without taking into account flexible features we find that in countries with either no fiscal rule or with a rigid fiscal rule a fiscal consolidation of at least 2 percent of gdp is associated with an average 10 percent reduction in public investment instead in countries with flexible fiscal rules the negative effect of fiscal adjustments on public investment vanishes which implies that flexible rules protect public investment during consolidation episodes the corollary is that the design of fiscal rules can add a growth friendliness dimension to the fiscal sustainability objective that has typically been the focus of fiscal rules in the past provided public investment is productive

the cyclicality of consumption wages and employment of the public sector in the euro area this study empirically examines the business cycle behaviour of public consumption and its main components the public wage bill including its breakdown into compensation per employee and public employment and intermediate consumption in the euro area aggregate euro area countries and a group of selected non euro area organization for economic co operation and development oecd countries denmark sweden the uk japan and the us it looks across a large number of variables and methods using annual data from 1960 to 2005 it finds robust evidence supporting that public consumption wages and employment co move with the business cycle in a pro cyclical manner with 1 2 year lags notably for the euro area aggregate and euro area countries the findings reflect mainly the correlation between cyclical developments but also point to an important role of pro cyclical discretionary fiscal policies

housing booms and local spending abstract this paper examines how local governments adjust their spending in response to a temporary revenue windfall generated by a housing boom we focus on spanish local governments because of the intensity of the last housing boom bust experienced there and the large share of construction related revenues they obtain we find that windfall revenues were mostly used to increase expenditures above all current we seek to determine whether this behaviour was due to political myopia incumbents in contested elections increasing expenditures to convince uninformed voters about their competence or to extrapolation bias leading to the overstatement of the persistence of revenue shocks we find evidence for both mechanisms the propensity to spend is higher where local incumbents were elected by a narrow vote margin and lower in places with past volatility experience finally we also examine what happens during the bust and find that governments enjoying large windfalls during the boom had to cut their spending abruptly above all capital and raise taxes the adjustment during the bust was actually greater in those places that overspent more during the crisis

short and long run asymmetric effect of oil prices and oil and gas revenues on the real gdp and economic diversification in oil dependent economy abstract the aim of this paper is to explore the short and long run asymmetric impact of oil prices shocks and oil and gas revenues changes on the total real gdp and the level of economic diversification of the qatar economy to this end two econometric approaches have been used 1 the a b structural vector autoregressive ab svarx model with exogenous variables where four different asymmetric oil prices and oil and gas revenues measures have been employed and 2 the nonlinear autoregressive distributed lag nardl model the results show that in the short run the responses of both total real gdp and non oil real gdp to negative shocks on real oil prices and real oil and gas revenues are higher than the impact of positive shocks indicating evidence for the existence of asymmetric impact of shocks in the short run however the results suggest that the impact of shocks do not last more than three quarters this evidence for the existence of asymmetric behavior is also confirmed by the nardl analysis which shows that in the long run positive oil prices shocks and oil and gas revenues changes have higher impact on the two proxies of economic activity than negative changes do a result that confirms the resilience of the qatar economy to negative shocks and the positive role played by the energy sector in improving the qatar economic diversification degree finally the results show that the non oil sector is completely resilient to negative shocks in the long run as the impact of negative shocks are insignificant on the non oil real gdp several policies aimed to improve the level of economic diversification of the country and delink the government revenues from oil and gas revenues are proposed and discussed

fiscal spending and economic growth some stylized facts using an event analysis this paper complements the cross country approach to the study of fiscal correlates of growth data on fiscal expenditures and growth for a database of 140 countries 118 developing countries over 1972 2005 are reorganized around turning points providing a summary but encompassing description of what is in the data for this sample the probability of occurrence of a fiscal event is about 10 and the probability of a growth event once a fiscal event had occurred is around 26 for developing countries fiscal events followed by growth events occur under situations of i significantly lesser deficit ii fewer resources devoted to non interest general public services and iii shift in primary expenditures toward transport communication after controlling for the growth inducing effects of positive terms of trade shocks and of trade liberalization reform probit estimates indicate that a growth event is more likely to occur in a developing country when surrounded by a fiscal event moreover the probability of occurrence of a growth event in the years following a fiscal event is greater the lower is the associated fiscal deficit confirming that success of a growth oriented fiscal expenditure reform is associate with a stabilized macroeconomic environment through limited primary fiscal deficit

budget deficits and social protection cyclical government expenditure in the oecd countercyclical government spending offers social protection to the vulnerable when economies move into recession this paper questions the extent to which governments are able to spend countercyclically and the extent to which social expenditures are likely to be countercyclical an analysis of public spending in oecd countries 1980 2005 suggests countercyclical social protection is constrained by the limits to public borrowing and the degree of political polarization

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

good bad or ugly on the effects of fiscal rules with creative accounting abstract do fiscal rules lead to fiscal adjustment or do they encourage the use of creative accounting this question is studied with a model in which fiscal rules are imposed on measured fiscal variables which can differ from true variables because there is a margin for creative accounting the probability of detecting creative accounting depends on its size and the transparency of the budget the model studies the effects on fiscal policy of a budget rule separating structural from cyclical effects and examines how these effects depend on the underlying fiscal distortion and on the degree of transparency of the budget

optimal fiscal policy in a small open economy with limited commitment abstract we introduce limited commitment into a standard optimal fiscal policy model in small open economies we consider the problem of a benevolent government that signs a risk sharing contract with the rest of the world and that has to choose optimally distortionary taxes on labor income domestic debt and international transfers both the home country and the rest of the world may have limited commitment which means that they can leave the contract if they find it convenient the contract is designed so that at any point in time neither party has incentives to exit we define a small open emerging economy as an economy where the limited commitment problem is active in equilibrium conversely a small open developed economy is an economy in which the commitment problem is not active our model is able to rationalize some stylized facts about fiscal policy in emerging economies i the volatility of tax revenues over gdp is higher in emerging economies than in developed ones ii fiscal policy is procyclical in emerging economies iii emerging economies may graduate from procyclical fiscal policy and adopt countercyclical policies in the long run

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

why is fiscal policy often procyclical many countries especially developing ones follow procyclical fiscal policies namely spending goes up taxes go down in booms and spending goes down taxes go up in recessions we provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less than benevolent government to appropriate rents voters have incentives similar to the starving the leviathan classic argument and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well we test this argument against more traditional explanations based purely on borrowing constraints with a reasonable amount of success

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

over optimism in forecasts by official budget agencies and its implications the paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries in general the forecasts are found i to have a positive average bias ii to be more biased in booms and iii to be even more biased at the 3 year horizon than at shorter horizons this over optimism in official forecasts can help explain excessive budget deficits especially the failure to run surpluses during periods of high output if a boom is forecasted to last indefinitely retrenchment is treated as unnecessary many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or better yet the structural deficit but we also find iv countries subject to a budget rule in the form of euroland s stability and growth pact sgp make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries this effect may help explain frequent violations of the sgp the question becomes how to overcome governments tendency to satisfy fiscal targets by wishful thinking rather than by action chile in 2000 created structural budget institutions that may have solved the problem independent expert panels insulated from political pressures are responsible for estimating the long run trends that determine whether a given deficit is deemed structural or cyclical the result is that chile s official forecasts of growth and the budget have not been overly optimistic even in booms unlike many countries in the north chile took advantage of the 2002 7 expansion to run budget surpluses and so was able to ease in the 2008 9 recession

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

why do more polarized countries run more procyclical fiscal policy abstract we study the cyclical behavior of fiscal policy to explain why some countries exhibit procyclical fiscal policy stances being expansionary in good times and contractionary in bad times we develop a model that links the polarization of preferences over fiscal spending to the procyclicality bias we then present evidence that social polarization as measured by income inequality and educational inequality is consistently and positively associated with fiscal procyclicality even after controlling for other determinants from existing theories we also find a strong negative impact of fiscal procyclicality on economic growth

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

what should fiscal councils do fiscal watchdogs so called fiscal councils have been proposed as a method to counter deficit bias of fiscal policy the paper analyses theoretically what role fiscal councils could play and surve

macroeconomic effects of fiscal adjustment a tale of two approaches abstract we investigate the short term effects of fiscal adjustment on economic activity in 20 oecd countries from 1970 to 2009 we compare two approaches the traditional approach based on changes in cyclically adjusted primary balance capb and the narrative approach based on historical records proponents of the latter argue that it captures discretionary fiscal adjustment more accurately than the traditional approach we propose a new definition of capb that takes account of fluctuations in asset prices and reflects idiosyncratic features of fiscal policy in individual countries using this new definition we find that fiscal adjustments always have contractionary effects on economic activity in the short term we find no evidence of expansionary non keynesian fiscal adjustments spending based fiscal adjustments lead to smaller output losses than tax based fiscal adjustment these results are in line with the literature using the narrative approach suggesting that the capb when correctly specified can be used as a measure of fiscal adjustments

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

procyclical government spending a public choice analysis procyclical government spending occurs when government expenditures increase at a faster rate than income in an economic upturn but fall at a faster rate in a recession voracity effects occur when competition for increased spending proves more effective as national income increases public choice theory can be applied to describe the distribution of fiscal power across different tiers of government to shed insight into competition for intergovernmental transfers politicians have electoral incentives to press for intergovernmental transfers but they also have electoral incentives to signal their ability to manage the economy with this mix of incentives the prediction is that intergovernmental transfers will be procyclical and that sub central government spending will be more procyclical than central government spending public choice analysis of pressure for increased public spending predicts a specific pattern of cyclical government spending this pattern can be observed when analyzing government expenditures in 20 oecd countries between 1995 and 2006

a political economy theory of fiscal policy and unemployment this paper presents a political economy theory of fiscal policy and unemployment the underlying economic model is one in which unemployment can arise but can be mitigated by tax cuts and public spending increases such policies are fiscally costly but can be financed by issuing government debt policy decisions are made by a legislature consisting of representatives from different political districts the theory provides a positive account of the simultaneous determination of fiscal policy and unemployment the most important implication of the theory is that debt and unemployment levels should be positively correlated some evidence in support of this prediction is provided using data from a panel of developed countries

government science and technology budgets in times of crisis abstract following a recent paper by filippetti and archibugi filippetti a archibugi d 2011 innovation in times of crisis national systems of innovation structure and demand research policy 40 2 179 192 this article aims to contribute to the sparse literature on the impacts of the recent economic downturn on the government expenditures and innovative activities of the countries of the enlarged european union eu 27 using eurostat s socio economic objectives i e the nomenclature for the analysis and comparison of scientific programmes and budgets nabs 2007 classification this paper addresses the impact of the recent economic downturn on governments science and technology s t budgets across the 27 eu countries most countries followed a pro cyclical pattern where the government s t budgets in most nabs shrunk along slowing gross domestic product growth in similar pace with total government expenditure the new member states of eastern europe were the most affected

redistributive fiscal policies and business cycles in emerging economies abstract government expenditures are pro cyclical in emerging markets and counter cyclical in developed economies we show this pattern is most pronounced in social transfers which are also a large component of total government expenditures 28 39 the discrepancy in the cyclicality of spending on goods and services is smaller by contrast and the category accounts for just 11 16 of total government expenditures in a small open economy model we find disparate social transfer policies can account for about half of the larger cyclical volatility of consumption relative to output in emerging economies compared to developed we analyze how differences in tax policy and the nature of underlying inequality amplify or mitigate this result

was this time different fiscal policy in commodity republics abstract we revisit the issue of fiscal procyclicality in commodity rich nations commodity republics in the nomenclature of this paper since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries we focus on the behavior of fiscal variables across the commodity cycle in contrast to behavior across the output cycle which has been the main focus of earlier research on fiscal procyclicality we present evidence of reduced fiscal policy procyclicality in a number of countries our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries the presence of fiscal rules also seems to have made a difference countries that use them displayed a larger shift toward fiscal counter cyclicality between the two episodes

gps shifting agencies in choice of treatment earlier studies have shown that general practitioners gps prescription choices are influenced by effect patient costs and costs to society patient attitude and own experience this study builds on this knowledge and explores how prescription behaviour is affected when choices are made in different contexts where the conflicting roles as agents for the patient and agents for society are stressed a total of 309 danish gps were randomly allocated to one of three versions of a web based questionnaire which included a discrete choice experiment mixed logit models in willingness to pay wtp space were estimated with and without accounting for stated attribute non attendance results show that the gp s role as agent for his patients is clearly strengthened in the presence of national recommendations in contrast when recommendations are not present and when gps face a patient who is currently taking an expensive albeit effective medication the gp takes on his role as agent for society we find no evi

non linear effects of tax changes on output the role of the initial level of taxation this paper estimates the effect of worldwide tax changes on output following the narrative approach developed for the united states by romer and romer 2010 the analysis uses a novel dataset on value added taxes for 51 countries 21 industrial and 30 developing for the period 1970 2014 to identify 96 tax changes it then uses contemporaneous economic records to classify such changes as endogenous or exogenous to current or prospective economic conditions in line with theoretical distortionary and disincentive based arguments and using only exogenous tax changes the main finding is that the effect of tax changes on output is highly non linear the tax multiplier is essentially zero under relatively low moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase based on a global sample these novel non linear findings suggest that the recent consensus pointing to large negative tax multipliers in industrial countries particularly in europe e g alesina favero and giavazzi 2015 i is not a robust empirical regularity and ii is mainly driven by high initial tax rates in these countries the paper also shows that the bias introduced by misidentification of tax shocks critically depends on the procyclical or countercyclical nature of endogenous tax changes the relevance of the arguments is evaluated both for the novel global sample and for romer and romer s u s dataset

procyclicality of fiscal policy in european union countries abstract using real time data we examine whether fiscal policy has been counter or procyclical in a panel of 27 european union eu member states over the period 2000 2015 we also investigate whether fiscal rules and government efficiency improve the cyclical reaction of fiscal policy our results suggest that even though fiscal plans in eu countries have an acyclical stance budgetary outcomes are procyclical government efficiency and fiscal rules seem to reduce fiscal procyclicality further analysis also reveals that fiscal policy seems to be more procyclical in non euro area countries and in times of economic prosperity

the causes of unemployment in finland 1970 82 some further empirical evidence this study presents an aggregate labour market model of the finnish economy the model is consistent with the finnish institutional features wage determination by collective negotiations and the division of the economy into a supply oriented open sector and a demand oriented closed sector estimated labour market model suggests that the rise in the steady state unemployment rate can be accounted for by the following factors the rise in employer s tax rate the rise in the availability of benefits while out of work increased union strength increased labour force participation and import price shocks

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

revisiting the oil curse does ownership matter summary a large body of literature finds a negative relationship between oil abundance and economic growth the existing empirical evidence on the oil curse however does not account for variations in the ownership of oil this article investigates whether the effect of oil abundance on growth varies with ownership structures it also investigates whether pre existing institutional conditions influence the effect of oil abundance across different ownership structures using a novel database on ownership structures and employing a panel fixed effects estimation method it analyzes a sample of oil exporting developing countries during the period 1984 2005 the results show that the effect of oil abundance on growth varies with ownership structures and is also influenced by the quality of pre existing institutions under state ownership and control oil abundance reduces growth when the institutional quality is poor but increases growth when the institutional quality is good under private ownership on the other hand oil abundance increases growth when the institutional quality is poor but reduces growth when the institutional quality is good the results suggest that ownership matters and countries can avoid the oil curse by choosing an appropriate ownership structure given their pre existing institutional circumstances the policy advice in this article is adopt state ownership and control if the institutions are strong if the institutions are weak transfer ownership to foreign oil companies

credit constraints cyclical fiscal policy and industry growth this paper evaluates whether the cyclical pattern of fiscal policy can affect growth we first build a simple endogenous growth model where entrepreneurs can invest either in short run projects or in long term growth enhancing projects long term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short run profits by increasing firms market size in recessions a countercyclical fiscal policy will boost investment in productivity enhancing long term projects and the more so in sectors that rely more on external financing or which display lower asset tangibility second the paper tests this prediction using rajan and zingales 1998 s diff and diff methodology on a panel data sample of manufacturing industries across 17 oecd countries over the period 1980 2005 the evidence confirms that the positive effects of a more countercyclical fiscal policy on value added growth productivity growth and r d expenditure are indeed larger in industries with heavier reliance on external finance or lower asset tangibility

are bilateral remittances countercyclical by putting together a relatively large data set on bilateral remittances of emigrants this paper is able to shed light on the important hypothesis of smoothing the smoothing hypothesis is that remittances are countercyclical with respect to income in the worker s country of origin the recipient of the remittance while procyclical with respect to income in the migrant s host country the sender of the remittance the econometric results confirm the hypothesis this affirmation of smoothing is important for two reasons first it suggests that remittances should be placed on the list of criteria for an optimum currency area second it brings into doubt plans by governments in some developing countries to harness remittances for their own use in that government spending in these countries generally fails the test of countercyclicality which remittances pass

policy volatility institutions and economic growth abstract in this paper we present evidence that policy volatility exerts a strong and direct negative impact on growth using data for 93 countries we construct measures of policy volatility based on the standard deviation of the residuals from country specific regressions of government consumption on output undisciplined governments that implement frequent and large changes in government spending unrelated to the state of the business cycle generate lower economic growth we employ both instrumental variables and panel estimation to address concerns of omitted variables and endogeneity a 1 standard deviation increase in policy volatility reduces long term economic growth by about 0 74 in the panel regressions and by more than 1 percentage point in the cross section

the political economy of fiscal deficits a survey this paper surveys recent literature both theoretical and empirical regarding political explanations for fiscal deficits political economy suggests conflicts of interest may lie behind the emergence of deficits 1 opportunistic politicians generate deficits to win elections even in conflict with general welfare 2 conflicts of interests between politicians partisan preferences create incentives for at least some incumbents to run deficits and 3 conflicts of interest between different social groups or regions generate tensions in the allocation of government resources leading to overspending this paper reviews these different strands of the literature it also covers contributions that highlight the crucial role of budget institutions in determining the extent to which the political motivations to generate deficits are indeed translated into poor fiscal outcomes promising avenues for future research are highlighted