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Fiscal Policy, Business Cycles and Economic Stabilisation: Evidence from Industrialised and Developing Countries
This paper empirically investigates the responsiveness of fiscal policy to business cycles and the effectiveness of fiscal policy in reducing economic fluctuations. From regressions on the responsiveness of fiscal policy to business cycles, we find that the government's current expenditures and...
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| Published in: | Fiscal studies 2007-12, Vol.28 (4), p.437-462 |
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| Main Authors: | , |
| Format: | Article |
| Language: | English |
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| cited_by | cdi_FETCH-LOGICAL-c4623-c247a81bbbbe9678b2abe783fe44cf92d843cf45535f1589e124f0f25f629cfb3 |
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| cites | cdi_FETCH-LOGICAL-c4623-c247a81bbbbe9678b2abe783fe44cf92d843cf45535f1589e124f0f25f629cfb3 |
| container_end_page | 462 |
| container_issue | 4 |
| container_start_page | 437 |
| container_title | Fiscal studies |
| container_volume | 28 |
| creator | Lee, Young Sung, Taeyoon |
| description | This paper empirically investigates the responsiveness of fiscal policy to business cycles and the effectiveness of fiscal policy in reducing economic fluctuations. From regressions on the responsiveness of fiscal policy to business cycles, we find that the government's current expenditures and subsidies & transfers move counter-cyclically, whereas taxes and capital expenditures move pro-cyclically. Using economic fluctuations in neighbouring countries as an instrumental variable, we show that ordinary least squares (OLS) estimates understate the responsiveness of fiscal policy to economic fluctuations. We also find that fiscal policy responds asymmetrically over economic fluctuations. In investigating the effectiveness of fiscal policy in reducing economic fluctuations, we mitigate omitted variable bias by adding four important factors – military expenditures, oil production, economic fluctuations in neighbouring countries and fiscal policy responsiveness to business cycles. The results of effectiveness regressions are consistent with the responsiveness regressions, highlighting the importance of current expenditures, especially subsidies and transfers, in responding to business cycles and stabilising the economy. |
| doi_str_mv | 10.1111/j.1475-5890.2007.00063.x |
| format | article |
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From regressions on the responsiveness of fiscal policy to business cycles, we find that the government's current expenditures and subsidies & transfers move counter-cyclically, whereas taxes and capital expenditures move pro-cyclically. Using economic fluctuations in neighbouring countries as an instrumental variable, we show that ordinary least squares (OLS) estimates understate the responsiveness of fiscal policy to economic fluctuations. We also find that fiscal policy responds asymmetrically over economic fluctuations. In investigating the effectiveness of fiscal policy in reducing economic fluctuations, we mitigate omitted variable bias by adding four important factors – military expenditures, oil production, economic fluctuations in neighbouring countries and fiscal policy responsiveness to business cycles. The results of effectiveness regressions are consistent with the responsiveness regressions, highlighting the importance of current expenditures, especially subsidies and transfers, in responding to business cycles and stabilising the economy.</description><identifier>ISSN: 0143-5671</identifier><identifier>EISSN: 1475-5890</identifier><identifier>DOI: 10.1111/j.1475-5890.2007.00063.x</identifier><language>eng</language><publisher>Oxford, UK: Blackwell Publishing Ltd</publisher><subject>Bias ; Business cycles ; Capital expenditures ; Cross-national analysis ; Developing countries ; Economic development ; Economic fluctuations ; Economic growth rate ; Economic impact analysis ; Economic policy ; Economic stabilization ; Estimated taxes ; Financial economics ; Fiscal policy ; GDP ; Government spending ; Gross Domestic Product ; Income taxes ; Industrialized nations ; LDCs ; Macroeconomics ; Military spending ; Petroleum production ; Public finance ; Stabilization policy ; Studies ; Subsidies ; Taxes ; Trends ; Variables ; Volatility</subject><ispartof>Fiscal studies, 2007-12, Vol.28 (4), p.437-462</ispartof><rights>Institute for Fiscal Studies 2007</rights><rights>Copyright Institute for Fiscal Studies Dec 2007</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c4623-c247a81bbbbe9678b2abe783fe44cf92d843cf45535f1589e124f0f25f629cfb3</citedby><cites>FETCH-LOGICAL-c4623-c247a81bbbbe9678b2abe783fe44cf92d843cf45535f1589e124f0f25f629cfb3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.proquest.com/docview/236812877/fulltextPDF?pq-origsite=primo$$EPDF$$P50$$Gproquest$$H</linktopdf><linktohtml>$$Uhttps://www.proquest.com/docview/236812877?pq-origsite=primo$$EHTML$$P50$$Gproquest$$H</linktohtml><link.rule.ids>314,777,781,11670,12829,21369,21376,27848,27906,27907,33205,33206,33593,33594,33967,33968,36042,36043,43715,43930,44345,58220,58453,73971,74218,74645</link.rule.ids></links><search><creatorcontrib>Lee, Young</creatorcontrib><creatorcontrib>Sung, Taeyoon</creatorcontrib><title>Fiscal Policy, Business Cycles and Economic Stabilisation: Evidence from Industrialised and Developing Countries</title><title>Fiscal studies</title><description>This paper empirically investigates the responsiveness of fiscal policy to business cycles and the effectiveness of fiscal policy in reducing economic fluctuations. From regressions on the responsiveness of fiscal policy to business cycles, we find that the government's current expenditures and subsidies & transfers move counter-cyclically, whereas taxes and capital expenditures move pro-cyclically. Using economic fluctuations in neighbouring countries as an instrumental variable, we show that ordinary least squares (OLS) estimates understate the responsiveness of fiscal policy to economic fluctuations. We also find that fiscal policy responds asymmetrically over economic fluctuations. In investigating the effectiveness of fiscal policy in reducing economic fluctuations, we mitigate omitted variable bias by adding four important factors – military expenditures, oil production, economic fluctuations in neighbouring countries and fiscal policy responsiveness to business cycles. The results of effectiveness regressions are consistent with the responsiveness regressions, highlighting the importance of current expenditures, especially subsidies and transfers, in responding to business cycles and stabilising the economy.</description><subject>Bias</subject><subject>Business cycles</subject><subject>Capital expenditures</subject><subject>Cross-national analysis</subject><subject>Developing countries</subject><subject>Economic development</subject><subject>Economic fluctuations</subject><subject>Economic growth rate</subject><subject>Economic impact analysis</subject><subject>Economic policy</subject><subject>Economic stabilization</subject><subject>Estimated taxes</subject><subject>Financial economics</subject><subject>Fiscal policy</subject><subject>GDP</subject><subject>Government spending</subject><subject>Gross Domestic Product</subject><subject>Income taxes</subject><subject>Industrialized 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From regressions on the responsiveness of fiscal policy to business cycles, we find that the government's current expenditures and subsidies & transfers move counter-cyclically, whereas taxes and capital expenditures move pro-cyclically. Using economic fluctuations in neighbouring countries as an instrumental variable, we show that ordinary least squares (OLS) estimates understate the responsiveness of fiscal policy to economic fluctuations. We also find that fiscal policy responds asymmetrically over economic fluctuations. In investigating the effectiveness of fiscal policy in reducing economic fluctuations, we mitigate omitted variable bias by adding four important factors – military expenditures, oil production, economic fluctuations in neighbouring countries and fiscal policy responsiveness to business cycles. The results of effectiveness regressions are consistent with the responsiveness regressions, highlighting the importance of current expenditures, especially subsidies and transfers, in responding to business cycles and stabilising the economy.</abstract><cop>Oxford, UK</cop><pub>Blackwell Publishing Ltd</pub><doi>10.1111/j.1475-5890.2007.00063.x</doi><tpages>26</tpages></addata></record> |
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| ispartof | Fiscal studies, 2007-12, Vol.28 (4), p.437-462 |
| issn | 0143-5671 1475-5890 |
| language | eng |
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| source | International Bibliography of the Social Sciences (IBSS); Wiley:Jisc Collections:Wiley Read and Publish Open Access 2024-2025 (reading list); EBSCOhost Econlit with Full Text; JSTOR Archival Journals and Primary Sources Collection; Social Science Premium Collection; ABI/INFORM Global; Politics Collection; PAIS Index |
| subjects | Bias Business cycles Capital expenditures Cross-national analysis Developing countries Economic development Economic fluctuations Economic growth rate Economic impact analysis Economic policy Economic stabilization Estimated taxes Financial economics Fiscal policy GDP Government spending Gross Domestic Product Income taxes Industrialized nations LDCs Macroeconomics Military spending Petroleum production Public finance Stabilization policy Studies Subsidies Taxes Trends Variables Volatility |
| title | Fiscal Policy, Business Cycles and Economic Stabilisation: Evidence from Industrialised and Developing Countries |
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