Growth, income distribution, and fiscal policy volatility

Woo, Jaejoon

doi:10.1016/j.jdeveco.2010.10.002

Cited by 50 publications

(32 citation statements)

References 70 publications

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“…Blanchard andPerotti (2002, p. 1355). In the context of cross-section regressions over 1960, Woo (2011 puts forward a fiscal policy volatility channel, in which excessive discretionary changes in fiscal policy take place for reasons other than smoothing out fluctuations or responding to macroeconomic conditions. He first estimates time series regressions for final government expenditures (for each country) as a function of real GDP and controls.…”

Section: Empirical Methodologymentioning

confidence: 99%

Output growth and unexpected government expenditures

Escobari¹,

Mollick²

2013

The B.E. Journal of Macroeconomics

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This paper takes into account the dynamic feedback between government expenditures and output in a model that separates the effects of expected and unexpected government expenditures on output. We allow for standard determinants based on Solow's growth model, as well as financial globalization and trade openness measures for a sample of 56 industrial and emerging market economies over the 1970-2004 period. We find that unanticipated government expenditures have negative and significant effects on output growth, with higher effects in developed economies. Along with savings responses, we interpret these results based on how fiscal policy reacts to business cycles. Anticipated government expenditures have negative -but smaller effects -on output growth. These results are very robust to a recursive treatment of expectations, which reinforces the role of new information in an increasingly integrated world economy.

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Section: Empirical Methodologymentioning

confidence: 99%

Output growth and unexpected government expenditures

Escobari¹,

Mollick²

2013

The B.E. Journal of Macroeconomics

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“…Previous research suggests that procyclical and volatile fiscal policy negatively affect economic growth (Woo, 2011; 2009), exacerbate macroeconomic volatility (Fatas and Mihov, 2003;2012), and hamper attempts at protecting the most vulnerable groups during recessions (Hicks and Wodon, 2001;Ravallion, 2002). Thus, measures to contain procyclical biases in fiscal policy can be beneficial for improving long-term economic performance and social welfare.…”

Section: Resultsmentioning

confidence: 99%

Current Expenditure Upswings in Good Times and Capital Expenditure Downswings in Bad Times?: New Evidence from Developing Countries

Ardanaz

Izquierdo

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Terms of use: Documents inFollowing a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2017 Abstract * This paper studies the cyclical properties of two key expenditure categories (current and public investment spending) during the different phases of the business cycle (good times and bad times). Anecdotal evidence suggests that policymakers usually cannot resist the temptation of spending more on current expenditure in good times, but only pick capital expenditures to adjust during bad times. The paper answers the following questions: do current and capital expenditures react to the business cycle? If so, by how much, and why? In a sample of more than 100 developing countries and 30 developed countries observed between 1980 and 2014, a new empirical regularity specific to developing countries is identified: upswings are associated with increases in current primary expenditures (e.g., wages, transfers) only, while public investment falls and current spending remains acyclical during downturns. Evidence is also presented that this asymmetrical response is more pronounced in countries where incumbent politicians face shorter time horizons and weak institutions. Other ty...

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“…In addition, fiscal policy has also been historically volatile, due to discretionary shocks or sudden changes in fiscal policy undertaken for reasons other than addressing current macroeconomic conditions. Since there is ample empirical evidence suggesting that procyclical and volatile fiscal policy negatively affect economic growth (Woo 2011;, exacerbate macroeconomic volatility (Fatas and Mihov, 2003;2012), and hamper attempts at protecting the most vulnerable groups during recessions (Hicks and Wodon, 2001;Ravallion, 2002), measures to reduce fiscal volatility and contain procyclical biases in fiscal policy can be beneficial for improving longterm economic performance and social welfare.…”

Section: Introductionmentioning

confidence: 99%

“…5 In this figure, fiscal volatility is measured using the standard deviation of the residuals from country-specific regressions of government consumption on output (see Fatas and Mihov [2003] and Woo [2011] for details). Several interesting facts emerge from this scatter plot.…”

mentioning

confidence: 99%

Structural Fiscal Balances in Latin America and the Caribbean: New Dataset and Estimations

Ardanaz

Corbacho²,

Gonzales³

et al. 2015

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work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/ licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any noncommercial purpose, as provided below. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2015 Abstract * In recent years, an increasing number of countries have began anchoring their fiscal policy frameworks in terms of rules that target the cyclically adjusted or structural (as opposed to actual) balance in an effort to overcome problems of procyclicality and fiscal volatility. The logic for doing so is in principle compelling: rule-based fiscal policies allow automatic stabilizers to work freely during the cycle and help accumulate fiscal surpluses in good times. However, the estimation of structural balances is subject to a number of methodological challenges, including the degree of estimation uncertainty. This paper presents a range of estimates of the structural budget balance and uses them to analyze the cyclical behavior of fiscal policy in Latin America and the Caribbean. Based on an original dataset comprising detailed fiscal information from 20 countries across the region between 1990 and 2013 ** , the paper finds that the range of estimates can be large for some countries, especially those that derive substantial fiscal revenue from commodity-related activities. In addition, the evidence shows that on average, the region has followed a procyclical policy pattern: a 1 percent increase in the output gap is associated with up to a 0.66 percentage point deterioration in the structural primary balance. This pattern hides substanti...

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Growth, income distribution, and fiscal policy volatility

Cited by 50 publications

References 70 publications

Output growth and unexpected government expenditures

Output growth and unexpected government expenditures

Current Expenditure Upswings in Good Times and Capital Expenditure Downswings in Bad Times?: New Evidence from Developing Countries

Structural Fiscal Balances in Latin America and the Caribbean: New Dataset and Estimations

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