Cyclical Ratcheting in Government Spending: Evidence from the OECD
Zvi Hercowitz () and
Michel Strawczynski ()
No 2001.09, Bank of Israel Working Papers from Bank of Israel
This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. An empirical framework that includes both welfare and short-sighted considerations is applied to panel data set covering the 1975-1998 period. The main finding is that the prolonged rise in the government spending/GDP ratio is partially explained by cyclical ratcheting: the spending/GDP ratio increases during recessions and its reduction in expansions is only partial. The long-run ratcheting effect is estimated as approximately 2 percent of GDP. Also analyzed are the cyclical changes in the composition of government spending (goods and services, transfers and subsidies, and capital expenditure), as well as a possible link between cyclical ratcheting and government weakness.
Keywords: Cyclical ratcheting; government spending; output drift (search for similar items in EconPapers)
JEL-codes: E62 H50 H60 (search for similar items in EconPapers)
Pages: 33 pages
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ftp://repec-boi.northeurope.cloudapp.azure.com/RePEc/boi/wpaper/WP_2001.09.pdf First version, 2001 (application/pdf)
Journal Article: Cyclical Ratcheting in Government Spending: Evidence from the OECD (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:boi:wpaper:2001.09
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