 Dynamics of government spending cyclicalityEconomic Modelling, 2021, vol. 97, issue C, 411-427 Abstract: Government spending policy has an important macroeconomic stabilization role. We empirically revisit the computation of fiscal cyclicality measures by employing a novel time-varying approach while explicitly dealing with endogeneity concerns. Analyzing a sample of 36 advanced economies from 1970 to 2015, the focus of the paper is on the spending side of the budget and its components. The average government spending cyclicality is −0.9, pointing to sample counter-cyclicality. However, there is considerable cross-country heterogeneity: in less than 50 percent of the sample, cyclicality coefficients are negative and statistically significant. We also uncover that government spending has become increasingly more countercyclical between 1970 and mid-1990s. Several factors drive the degree of spending cyclicality. More developed economies (more open to trade) tend to have a smaller (higher) degree of spending procyclicality. Countries with larger governments and those with better institutions are able to provide more fiscal stabilization. Keywords: Government expenditure; Budgetary components; Time-varying coefficients; Weighted least squares; Panel data; Executive constraints (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:97:y:2021:i:c:p:411-427 DOI: 10.1016/j.econmod.2020.04.010 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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