IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA

William Gruben and John H. Welch

Contemporary Economic Policy, 2010, vol. 28, issue 2, 171-181

Abstract: Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are so intrusive to a nation's financial system that a move toward fiscal surplus lowers interest rates and increases growth. We sample nine Latin American countries to test for these relationships. The impulse‐response results of vector error correction models, six nations test positive for these two connections, suggesting market concern despite recent efforts toward fiscal balance. (JEL E430, E620, O230, O540)

Date: 2010
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https://doi.org/10.1111/j.1465-7287.2009.00062.x

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Working Paper: Is tighter fiscal policy expansionary under fiscal dominance? Hypercrowding out in Latin America (2005)
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