Why Do More Polarized Countries Run More Pro-cyclical Fiscal Policy?∗
نویسنده
چکیده
We study the cyclical behavior of fiscal policy to explain why some countries exhibit pro-cyclical fiscal policy stances–being expansionary in good times and contractionary in bad times. We develop a model that links the polarization of preferences over fiscal spending to the pro-cyclicality bias. We then present evidence that social polarization as measured by income inequality and educational inequality is consistently positively associated with fiscal pro-cyclicality, even after controlling for other determinants from existing theories. We also find a strong negative impact of fiscal pro-cyclicality on economic growth. JEL Classification: E62, E63, H30, O11
منابع مشابه
Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies?
The literature has argued that developing countries are unable to adopt counter-cyclical monetary and fiscal policies due to financial imperfections and unfavorable politicaleconomy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability to implement counter-cyclical macroec...
متن کاملFiscal policy over the real business cycle: A positive theory
This paper presents a political economy theory of the behavior of fiscal policy over the business cycle. The theory predicts that, in both booms and recessions, fiscal policies are set so that the marginal cost of public funds obeys a submartingale. In the short run, fiscal policy can be pro-cyclical with government debt spiking up upon entering a boom. However, in the long run, fiscal policy i...
متن کامل"And the last shall be first..."
This paper explores the political economy of fiscal policy in the German Länder, testing several theories from the cross-national literature on budget deficits along with some additional hypotheses relating to the incentives created by the German federal system. The results suggest that governments controlled by the left spend and borrow more in the long run than right-wing governments, though ...
متن کاملFiscal Decentralization and the Business Cycle: An Empirical Study of Eight Federations
Though fiscal policies of central governments sometimes provide modest insurance against regional income shocks, this paper shows that pro-cyclical fiscal policy among provincial governments can easily overwhelm these stabilizing effects. We examine the cyclicality of budget items among provincial governments in eight federations, showing that own-source taxes are highly pro-cyclical and contra...
متن کاملAssessment and Measurement of Fiscal Condition Index for Iran
This paper presents a framework for assessing the fiscal condition index (FCI) and develops a concept to assess fiscal condition of governments and implements it into Iran government as an oil exporting country. The concept consists of four dimensions -revenue, expenditure, budget balance, and debt structure-and each dimension has its own indicators. There are seven indicators examined namely ...
متن کامل