Fiscal policy and financial depth
By: Ricardo J. Caballero, Arvind Krishnamurthy.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10532; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10532.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Fiscal policy -- Argentina.; Financial crises -- Argentina.; Crowding out (Economics) -- Argentina.
Description: "Most economists and observers place the lack of fiscal discipline at the core of the recent Argentine crisis.  This begs the question of how countries like Belgium or Italy (pre-Maastricht) could run large fiscal deficits and accumulate debts far beyond those of Argentina, without experiencing crises nearly as dramatic as that of Argentina? Why is it that Argentina cannot act like Belgium or Italy and pursue expansionary fiscal policy during downturns? We argue that advanced and emerging economies differ in their financial depth, and show that lack of financial depth constrains fiscal policy in a way that can overturn standard Keynesian fiscal policy prescriptions.  We also provide empirical support for this viewpoint.  Crowding out is systematically larger in emerging markets than in developed economies.  More importantly, this difference is extreme during crises, when the crowding out coefficient exceeds one in emerging market economies"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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Mode of access: World Wide Web.