(constant 2015 US$) come from the World Bank’s World Development Indicators database (World Bank 2023).

The data on revenue (percent of GDP), tax revenue (percent of GDP), expenditure (percent of GDP), and subsidies (percent of GDP) are multiplied with real GDP (constant LCU) to derive the respective total values measured in LCU. Following the previous literature (Talvi & Vegh 2005; Frankel et al. 2013), the cyclicality of each of these variables is estimated as the correlation between the cyclical component of the respective variable ( ) and the cyclical component of GDP ( ): XX YY C i i i i )], (1) Cyclicality(XX) = C [(XX −XX<sup>�</sup> ) −(YY −YY<sup>�</sup> where i i ) is the Hodrick-Prescott (HP)-filtered cyclical component of the logarithm of the fiscal policy variable , and i i ) is the HP-filtered cyclical component of the logarithm of real GDP (XX −XX<sup>�</sup> (following Ravn & Uhlig 2002 and Belhaj et al. 2022, we use a smoothing parameter of ). The XX (YY −YY<sup>�</sup> cyclicality of revenue as a share of GDP is computed in the same way but without taking logs. The cyclicality λλ= 6.25 of the overall fiscal balance is computed as the difference between the cyclical component of government revenue and the cyclical component of government expenditure (IMF 2016).

For each fiscal policy variable, a positive correlation indicates procyclical behavior and a negative correlation indicates countercyclical behavior relative to the business cycle. It is important to note that countercyclical fiscal policy requires expenditures to move countercyclically to the business cycle, whereas revenues and fiscal balance should move procyclically to the business cycle; that is, revenues should _increase_ during economic booms (when GDP increases), dampening the cycle, and _decrease_ during recessions, softening the economic downturn (when GDP decreases). Therefore, we will interpret the derived correlation coefficients as being in line with the goal of countercyclical fiscal policy if they are negative for expenditures and positive for revenues and fiscal balance.

The sample covers 184 countries in the period 2000-2022, including 17 MENA countries: Algeria, Bahrain, the Arab Republic of Egypt, Iraq, the Islamic Republic of Iran, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, the United Arab Emirates, the West Bank and Gaza, and the Republic of Yemen (other countries in the MENA region are excluded for lack of consistent data).

# **4. Empirical results**

**Over the past two decades, fiscal policy tended to be more countercyclical in richer economies.** Figure 1 shows the correlation between the cyclicality of several fiscal policy variables and countries’ income levels. Most low- and middle-income countries feature procyclical or cyclically neutral expenditures, whereas most high-income countries feature countercyclical expenditures. At the same time, high-income countries also saw their revenues and fiscal balances move more strongly in line with the business cycle, corresponding to the desired outcome under countercyclical fiscal policy. This indicates that richer countries were generally more successful in achieving countercyclical fiscal policy than countries with

assistance benefits, and employer social benefits in cash and in kind (World Bank 2023). For the Arab Republic of Egypt, we amend this variable with data from World Bank internal sources as follows (for the years 2003-2023): 4.9%, 5.1%, 5.5%, 11.2%, 7.8%, 10.3%, 12.2%, 8.5%, 9.0%, 9.0%, 10.6%, 10.7%, 8.1%, 7.4%, 7.6%, 7.1%, 5.1%, 3.7%, 4.0%, 4.4%, 4.4%.

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