Is fiscal countercyclicality growth enhancing? Evidence from developing countries over the period 1990–2019

Sami Kallal ()
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Sami Kallal: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2025003, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: The objective of this paper is to analyze the time-varying effect of improving fiscal countercyclicality on growth for a sample of 35 developing countries over the period 1990–2019. By estimating a time-varying coefficient for fiscal countercyclicality, incorporated as a variable in a panel model, we first examine how the public debt ratio and electoral motivations influence the ability to adopt countercyclical policies. Secondly, we show that greater countercyclicality positively affects economic growth and contributes to reducing the output gap, particularly during recessions, by channeling production towards its potential path. Finally, our findings are confirmed across two sub-samples, demonstrating a positive effect on growth before the 2008 crisis and a reduction in the output gap both before and after the crisis. The effect is stronger in the sub-sample characterized by high income, low debt, and strong control of corruption, suggesting that the effectiveness of countercyclical policies depends on macroeconomic and institutional factors. Countercyclical fiscal management should therefore be given greater consideration by fiscal policymakers in developing countries, both upstream and downstream.

Keywords: Countercyclical fiscal policy; Developing countries; Economic growth; Panel data model; Time-varying parameters (search for similar items in EconPapers)
JEL-codes: C23 E32 H62 O40 (search for similar items in EconPapers)
Pages: 11
Date: 2025-05-05
Note: In: The Journal of Economic Asymmetries, 2025, vol. 32, e00416
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2025003

DOI: 10.1016/j.jeca.2025.e00416

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