Fiscal Policy Discretion, Private Spending, and Crisis Episodes

44 Pages Posted: 12 Dec 2011

See all articles by Luca Agnello

Luca Agnello

Banque de France

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Ricardo M. Sousa

University of Minho; Economic Policies Research Unit (NIPE); London School of Economics & Political Science (LSE) - Financial Markets Group; London School of Economics

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

Agnello, Luca and Furceri, Davide and Sousa, Ricardo Magalhaes, Fiscal Policy Discretion, Private Spending, and Crisis Episodes (December 1, 2011). Banque de France Working Paper No. 354, Available at SSRN: https://ssrn.com/abstract=1971164 or http://dx.doi.org/10.2139/ssrn.1971164

Luca Agnello (Contact Author)

Banque de France ( email )

Paris
France

Davide Furceri

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Ricardo Magalhaes Sousa

University of Minho ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://econ.lse.ac.uk

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