The Fiscal Smile: The Effectiveness and Limits of Fiscal Stabilizers

Maria Silgoner, Jesús Crespo-Cuaresma and Gerhard Reitschuler
Authors registered in the RePEc Author Service: Jesus Crespo Cuaresma

No 2003/182, IMF Working Papers from International Monetary Fund

Abstract: We study the smoothing impact of fiscal stabilizers (proxied by government expenditures or revenues) on business cycle volatility for a panel of EU countries in the period 1970-99. The results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels. We present evidence that for government expenditure ratios exceeding an estimated value of about 38 percent, a further expansion in the size of the government could actually lead to an increase in cyclical volatility. This may call for a reconsideration of the use of fiscal stabilizers for business cycle smoothing.

Keywords: WP; government; nonwage government consumption; Fiscal Stabilizers; Business Cycle Volatility; Nonlinearity; government size; government strength variable; power indices; strength indicator; cyclical volatility; adjusted government expenditure; expenditure side; unadjusted government expenditure series; government expenditure side; wage government consumption; government strength indicator; Business cycles; Automatic stabilizers; Production growth; Europe (search for similar items in EconPapers)
Pages: 30
Date: 2003-09-01
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: The fiscal smile - on the effectiveness and limits of fiscal stabilizers (2004)
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