Government Spending Cyclicality: Evidence from Rainfall Shocks as an Instrument for Cyclical Income

Mark Gradstein and Brückner, Markus
Authors registered in the RePEc Author Service: Markus Brueckner

No 8622, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This research revisits the cyclicality of fiscal policies. To identify and estimate more precisely the magnitude of a causal effect of cyclical income on government spending, we employ annual rainfall data as an instrument for national income in the context of sub-Saharan countries. Our results confirm procyclical behavior of government spending and of tax revenues; debt and deficit are found to be countercyclical. Specifically, government spending is procyclical during upturns and acyclical during downturns. We also find that its procyclicality is correlated with corruption, especially among democracies.

Keywords: Fiscal policy; Cyclicality (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-mac and nep-pbe
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