Procyclical Fiscal Policy: Shocks, Rules, and Institutions - a View from Mars

By P. Manasse. Social Science Research Network, 2006

117 citations recorded by the source corpus.

This paper assesses the roles of shocks, rules, and institutions as possible sources of procyclicality in fiscal policy. By employing parametric and nonparametric techniques, I reach the following four main conclusions. First, policymakers' reactions to the business cycle is different depending on the state of the economy - fiscal policy is "acyclical" during economic bad times, while it is largely procyclical during good times. Second, fiscal rules and fiscal responsibility laws tend to reduce the deficit bias on average, and seem to enhance, rather than to weaken, countercyclical policy. However, the evidence also suggests that fiscal frameworks do not exert independent effects when the quality of institutions is accounted for. Third, strong institutions are associated to a lower deficit bias, but their effect on procyclicality is different in good and bad times, and it is subject to decreasing returns. Fourth, unlike developed countries, fiscal policy in developing countries is procyclical even during (moderate) recessions; in "good times", however, fiscal policy is actually more procyclical in developed economies.

Subfields: Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/71bcbaa595fd99cdd9a83f0b92bea1ebaa9a14c4

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Citations in the corpus

Procyclical Fiscal Policy in Developing Countries: Truth or Fiction? (2008, background): “1See, among others, Mailhos and Sosa (2000), Braun (2001), Sanchez de Cima (2003), Lane (2003), Kaminsky, Reinhart, and Végh (2004), Alesina and Tabellini (2005), Manasse (2006), Sturzenegger and Wernek (2006), Ilzetzki (2007), and Strawczynski and Zeira (2007).”
Targeting the Structural Balance (2007, unknown): “Similar results are found by Manasse (2006) for a large sample of developed and emerging economies.”
Fiscal Policy Challenges in Oil-Exporting Countries - A Review of Key Issues (2009, background): “Among the great number of studies consulted, there are a few that only include fi scal variables in the panel (Manasse, 2006).”
Flexible Fiscal Rules and Countercyclical Fiscal Policy (2016, background): “However, other empirical work found that numerical fiscal rules had been associated with less procyclical fiscal behaviors in the European Union (Galí and Perotti, 2003 and Manasse, 2006).”