Fiscal Policy Responsiveness, Persistence and Discretion
47 Pages Posted: 20 Nov 2008
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Fiscal Policy Responsiveness, Persistence and Discretion
Fiscal Policy Responsiveness, Persistence, and Discretion
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: Suggested Citation
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