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4 edition of Procyclical fiscal policy in developing countries found in the catalog.

Procyclical fiscal policy in developing countries

Ethan Ilzetzki

Procyclical fiscal policy in developing countries

truth or fiction?

by Ethan Ilzetzki

  • 369 Want to read
  • 33 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English


Edition Notes

StatementEthan Ilzetzki, Carlos A. Vegh.
SeriesNBER working paper series -- working paper 14191, Working paper series (National Bureau of Economic Research : Online) -- working paper no. 14191.
ContributionsVégh Gramont, Carlos A., 1958-, National Bureau of Economic Research.
Classifications
LC ClassificationsHB1
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL17064380M
LC Control Number2008611003


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Procyclical fiscal policy in developing countries by Ethan Ilzetzki Download PDF EPUB FB2

However, contrary to this conventional views, recent research has demonstrated that fiscal policy is actually procyclical in most developing countries. In this book, we attempt to propose a new interpretation of this procyclicality after reviewing theoretical and empirical evolution of.

A large empirical literature has found that fiscal policy in developing countries is procyclical, in contrast to high-income countries where it is countercyclical.

The idea that fiscal policy in developing countries is procyclical has all but reached the status of conventional wisdom. This has sparked a growing theoretical. A large empirical literature has found that fiscal policy in developing countries is procyclical, in contrast to high-income countries where it is countercyclical.

The idea that fiscal policy in developing countries is procyclical has all but reached the status of conventional wisdom. A large empirical literature has found that fiscal policy in developing countries is procyclical, in contrast to high-income countries where it is countercyclical.

BibTeX @MISC{Ilzetzki08procyclicalfiscal, author = {Ethan Ilzetzki and Carlos A. Végh and Ugo Panizza and Roberto Rigobon and Martin Uribe}, title = {Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?”NBER Working Papers }, year = {}}.

A large empirical literature has found that fiscal policy in developing countries is procyclical, in contrast to high-income countries where it is countercyclical.

The idea that fiscal policy in developing countries is procyclical has all but reached the status of conventional by: Fiscal policy in developing countries has become slightly less procyclical over the last two decades.

Before the crisis, 64 percent of developing countries had a procyclical fiscal. allows us to map the landscape of fiscal rules in the developing world—who adopted what, when and why. This paper also explores the relation between fiscal rules and procyclical fiscal policy in EMDEs.

Fiscal policy in these economies has been notoriously procyclical, with adverse, destabilizing effects on growth and welfare. However, empirical studies show that fiscal policies are procyclical in developing countries and in OPCs.5 They increase spending with an increase in oil revenue during an oil price boom.

They are forced to reduce spending because of a revenue decline as. The standard explanation for procyclical fiscal policy in developing countries relies on imperfect access during bad times to international credit markets.

The idea is that countries hit by an adverse shock lose access to international credit at the time when it is most by: Tax base variability and procyclical fiscal policy in developing countries. Author & abstract "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, "When it rains, it pours: Procyclical capital flows and macroeconomic.

This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy.

We find that, since the early s, developing countries outnumbered advanced economies as users of fiscal rules. Rules were adopted either as part of the toolkit to join currency unions or to strengthen fiscal Cited by: 3. Downloadable.

This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy. We find that, since the early s, developing countries outnumbered advanced economies as users of fiscal rules.

Rules were adopted either as part of the toolkit to join currency unions or to strengthen fiscal. Abstract This paper surveys fiscal policy in developing countries from the point of view of long-run growth.

The first section reviews existing methodologies to estimate the effects of fiscal policy shocks and of systematic fiscal policy, with time series or with cross-sectional methods, and their applicability to developing countries.

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).Cited by: Downloadable.

A large empirical literature has found that fiscal policy in developing countries is procyclical, in contrast to high-income countries where it is countercyclical. The idea that fiscal policy in developing countries is procyclical has all but reached the status of conventional wisdom. This has sparked a growing theoretical literature that attempts to explain.

However, contrary to this conventional views, recent research has demonstrated that fiscal policy is actually procyclical in most developing countries. In this book, we attempt to propose a new interpretation of this procyclicality after reviewing theoretical and.

The available evidence on the cyclical behavior of fiscal policy, and possible reasons for the observed prevalence of a procyclical behavior in developing countries, is also reviewed. If one agrees that fiscal policy is indeed less countercyclical than we think is optimal, the issue is how to correct the problem.

Can Statistical Capacity Building Help Reduce Procyclical Fiscal Policy in Developing Countries. Prepared by Neree C.G.M. Noumon, Sampawende J.-A. Tapsoba, and Robert C. York1 November ABSTRACT Few papers have attempted to assess the role of “capacity,” especially in the area of macroeconomic statistics.

The available evidence on the cyclical behavior of fiscal policy, and possible reasons for the observed prevalence of a procyclical behavior in developing countries, is also reviewed.

If one agrees that fiscal policy is indeed less countercyclical than we think is optimal, the issue is how to correct the problem.

One obvious question is. Fiscal policy is procyclical in many developing countries. We explain this policy failure with a political agency problem. Procyclicality is driven by voters who seek to "starve the Leviathan" to.

In the past, developing countries tended to follow procyclical fiscal policy: they increased spending (or cut taxes) during periods of expansion and cut spending (or raised taxes) during periods of recession. Many authors have documented that fiscal policy has tended to be procyclical in developing countries, in comparison with a pattern among industrialized.

In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle.

We show that, over the last decade, about a third of the developing world has been able to escape the. in developing countries are much worse than “bad times” in industrialized countries, so that procyclical behavior occurs for a larger range of bad states. Once in “good times,” however, fiscal policy is actually more procyclical in developed economies.

Before I proceed, let me clarify some terms used in the paper. Fiscal policy is definedFile Size: KB. Downloadable (with restrictions). Fiscal policy is procyclical in many developing countries. We explain this policy failure with a political agency problem. Procyclicality is driven by voters who seek to "starve the Leviathan" to reduce political rents.

Voters observe the state of the economy but not the rents appropriated by corrupt governments. Many countries, especially developing ones, follow procyclical fiscal polices, 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. In the past, developing countries tended to follow procyclical fiscal policy.

They increased spending (or cut taxes) during periods of expansion and cut spending (or raised taxes) during periods of recession. Industrial countries are denoted by black bars and developing countries by yellow bars.

A negative correlation implies countercyclical fiscal policy, under which government spending increases (falls) when real GDP is goes down (up). Conversely, a positive correlation indicates procyclical fiscal policy. This paper examines the cyclicality of fiscal behavior in 28 developing oil-producing countries (OPCs) during After testing five fiscal measures - government expenditure, consumption, investment, non-oil revenue, and non-oil primary balance - and correcting for reverse causality between non-oil output and fiscal variables, the results suggest that all of the five fiscal.

Fiscal Policy Is Procyclical in Developing Countries There is strong evidence that fiscal policy has been procyclical in developing countries.

Fiscal expansions tend to take place in good times, and not during bad times when they might play some role in smoothing output declines. This applies to a variety of measures.

Using panel data from 62 developing countries, we find evidence that improvements in this index are associated with less procyclicality of government spending over the period –; with the significance of this relationship dependent upon the quality of administrative and technical capacity of budgetary institutions.

A significant number of authors have documented the more procyclical behaviour of fiscal policy in developing countries.

Industrialised countries, in turn, tend to behave largely in a counter-cyclical or, at worst, a-cyclical fashion – except for the more recent precocious adoption of fiscal adjustment in particular countries. NBER Program(s):International Finance and Macroeconomics Based on a sample of 56 countries, we find that while fiscal policy in the G-7 countries appears to be broadly consistent with Barro's tax smoothing proposition, in developing countries government spending and taxes are highly procyclical (i.e., government spending rises and taxes fall during expansions, while the reverse.

ADVERTISEMENTS: Role of Fiscal Policy in Developing Countries. The fiscal policy in developing countries should apparently be conducive to rapid economic development. In a poor country, fiscal policy can no longer remain a compensatory fiscal policy.

It has a tough role to play in a developing economy and has to face the problem of growth-cum-stability. Downloadable. Based on a sample of countries, we document four key stylized facts regarding the interaction between capital flows, fiscal policy, and monetary policy.

First, net capital inflows are procyclical (i.e., external borrowing increases in good times and falls in bad times) in most OECD and developing countries. Second, fiscal policy is procyclical (i.e.

Procyclical and countercyclical variables are variables that fluctuate in a way that is positively or negatively correlated with business cycle fluctuations in gross domestic product (GDP). The scope of the concept may differ between the context of macroeconomic theory and that of economic policy–making.

The concept is often encountered in the context of a government's approach. Government spending is procyclical in developing countries, exacerbating the business cycle.

However, an analysis of tax policy is also required in order to properly assess the overall stance of fiscal policy. This column presents recent research showing that tax policy tends to be procyclical in developing countries and acyclical in developed countries.

Get this from a library. Fiscal rules and the procyclicality of fiscal policy in the developing world. [Elva Bova; Nathalie Carcenac; Martine Guerguil; International Monetary Fund. Fiscal Affairs Department,] -- "This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy.

Why has fiscal policy been procyclical in developing countries. Traditional explanations for this poor fiscal behavior have revolved around two main arguments. The first argument points to. Introduction. The cyclical behavior of fiscal policy differs across countries by income group.

In the past, while industrial countries have tended to pursue fiscal policy that is countercyclical or at worst acyclical, developing countries have tended to follow procyclical fiscal policy: they have increased spending (or cut taxes) during periods of expansion and cut spending (or Cited by:.

A vast theoretical and empirical literature states that fiscal policy in developing countries is procyclical, whereas in industrialized countries fiscal policy is countercyclical or acyclical.Procyclical Fiscal Policy by Toshihiro Ihori, Keigo Kameda Paperback, 69 Pages, Published ISBN X ISBN Conventional wisdom dictates that a fiscal policy should be counter-cyclical.

However, contrary to t.This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy.

We find that, since the early s, developing countries outnumbered advanced economies as users of fiscal rules.