Government Size and Business Cycle Volatility; How Important Are Credit Constraints?

Markus Leibrecht () and Johann Scharler
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Markus Leibrecht: Leuphana University Lueneburg, Department of Economics, Germany

No 237, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: In this paper we analyze how the availability of credit in uences the relationship between government size as a proxy for scal stabilization policy and the amplitude of business cycle uctuations in a sample of advanced OECD countries. Interpreting relatively low loan-tovalue ratios as an indication for tight credit constraints, we nd that government size exerts a stabilizing e ect on output and consumption growth uctuations only when credit constraints are relatively tight. Our results are robust with respect to di erent measures of government size and provide support for the hypothesis that credit market frictions play a crucial role in the transmission of scal policy.

Keywords: Business cycle; volatility; scal policy; stabilization policy (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-04
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Government Size and Business Cycle Volatility: How Important are Credit Constraints? (2015)
Working Paper: Government Size and Business Cycle Volatility; How Important Are Credit Constraints? (2012)
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