Fiscal Policy Discretion, Private Spending, and Crisis Episodes
44 Pages Posted: 12 Dec 2011
Date Written: December 1, 2011
Abstract
In this paper, we assess the impact of fiscal policy discretion on economic activity in the short and medium-term. Using a panel of 132 countries from 1960 to 2008, we find that fiscal policy discretion provides a net stimulus to the economy in the short-run and crowding-in effects are amplified once crisis episodes are controlled for– in particular, banking crises - giving a great scope for fiscal policy stimulus packages. However, crowding-out effects take over in the long-run – especially, in the case of debt crises -, in line with the concerns about long-term debt sustainability.
Keywords: fiscal policy discretion, GDP growth, private consumption, private investment, crowding-in, crowding-out
JEL Classification: E0, E6
Suggested Citation: Suggested Citation
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