TY - JOUR
T1 - Fiscal space and government-spending and tax-rate cyclicality patterns
T2 - A cross-country comparison, 1960–2016
AU - Aizenman, Joshua
AU - Jinjarak, Yothin
AU - Nguyen, Hien Thi Kim
N1 - Publisher Copyright:
© 2019 Elsevier Inc.
PY - 2019/6/1
Y1 - 2019/6/1
N2 - This paper compares fiscal cyclicality across advanced and developing countries, geographic regions as well as income levels over 1960–2016 period, then identifies factors that explain countries’ government spending and tax-policy cyclicality. Public debt/tax base ratio provides a more robust explanation for government-spending cyclicality than public debt/output ratio but the reverse is true when capital investment is accounted for in government spending. On average, a more indebted (relative to tax base) government spends more in good times and cuts back spending indifferently compared with a low-debt country in bad times. We also find that country's sovereign wealth fund has a countercyclical effect in our estimation. Finally, the analysis depicts a significant economic impact of an enduring interest-rate rise on fiscal space, that is, a 10% increase of public debt/tax base ratio is associated with an upper bound of 5.9% increase in government-spending procyclicality.
AB - This paper compares fiscal cyclicality across advanced and developing countries, geographic regions as well as income levels over 1960–2016 period, then identifies factors that explain countries’ government spending and tax-policy cyclicality. Public debt/tax base ratio provides a more robust explanation for government-spending cyclicality than public debt/output ratio but the reverse is true when capital investment is accounted for in government spending. On average, a more indebted (relative to tax base) government spends more in good times and cuts back spending indifferently compared with a low-debt country in bad times. We also find that country's sovereign wealth fund has a countercyclical effect in our estimation. Finally, the analysis depicts a significant economic impact of an enduring interest-rate rise on fiscal space, that is, a 10% increase of public debt/tax base ratio is associated with an upper bound of 5.9% increase in government-spending procyclicality.
UR - http://www.scopus.com/inward/record.url?scp=85063192642&partnerID=8YFLogxK
U2 - 10.1016/j.jmacro.2019.02.006
DO - 10.1016/j.jmacro.2019.02.006
M3 - Article
AN - SCOPUS:85063192642
SN - 0164-0704
VL - 60
SP - 229
EP - 252
JO - Journal of Macroeconomics
JF - Journal of Macroeconomics
ER -