What Makes Discretionary Counter-Cyclical Fiscal Policy so Difficult? An Analysis of 32 OECD Countries

Jakob de Haan and Bram Gootjes

CESifo Economic Studies, 2023, vol. 69, issue 1, 1-20

Abstract: We examine the stance of fiscal policy for 32 OECD countries from 1986 to 2023 by comparing for each country-year observation the signs of the output gap and the change in the cyclically adjusted budget balance. We find that fiscal policies are often pro-cyclical. We test possible explanations using comparative statistics for country-year observations with pro- and counter-cyclical policies. Our evidence suggests that fiscal rules and institutional quality are not related to the prevalence of pro-cyclicality. Likewise, several political-economy arguments suggested for explaining pro-cyclical fiscal policies do not receive strong support. However, poor access to finance makes fiscal policies more pro-cyclical. (JEL codes: E62, H50, and H62)

Keywords: fiscal policy; economic stabilization; pro-cyclical (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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