Fiscal Policy Responsiveness, Persistence and Discretion

47 Pages Posted: 20 Nov 2008

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

Luca Agnello

University of Palermo - Department of Economics, Business and Statistics; ECB Fiscal Policies Division

Davide Furceri

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

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Date Written: October 28, 2008

Abstract

We decompose fiscal policy in three components: i) responsiveness, ii) persistence and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more persistent than to respond to output conditions. We also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence thereby suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence.

Keywords: Fiscal Policy, Fiscal Volatility

JEL Classification: E62, H50

Suggested Citation

Afonso, António and Agnello, Luca and Furceri, Davide, Fiscal Policy Responsiveness, Persistence and Discretion (October 28, 2008). ECB Working Paper No. 954, Available at SSRN: https://ssrn.com/abstract=1284926 or http://dx.doi.org/10.2139/ssrn.1284926

António Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.ulisboa.pt/aquila/homepage/aafonso/research

UECE (Research Unit on Complexity and Economics) ( email )

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

REM - Research in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

Luca Agnello

University of Palermo - Department of Economics, Business and Statistics ( email )

Viale delle Scienze
Palermo, 90100
Italy

ECB Fiscal Policies Division ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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

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