Cyclical Behavior of Fiscal Policy in the Western Balkans

Ernil Sabaj ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the cyclical behavior of fiscal policy in the Western Balkans region, investigating empirically the fiscal policy response to business cycles for the period 2003-2016. Although there is a large empirical literature which has found that fiscal policy in developing countries is pro-cyclical, not many studies are found on the Western Balkans region, with only a few done at country level. We apply the Hodrick-Prescott (HP) filter and other filters to measure the potential output and output gap for each of the respective Western Balkans countries. By performing country regressions we find that one of the main determinants fiscal pro-cyclicality in the WB6 region is the quality of the government. We conduct a series of structural vector auto-regressions (SVAR) for each of the countries in an attempt to obtain further evidence on the reaction of fiscal policy to the business cycle.

Keywords: Fiscal Policy; Business Cycles; Pro-cyclicality; Counter-cyclicality; Western Balkans (search for similar items in EconPapers)
JEL-codes: E30 E32 E60 E62 H60 (search for similar items in EconPapers)
Date: 2018-02-07
New Economics Papers: this item is included in nep-eec, nep-mac and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:84279

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