De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment

Joshua Aizenman and Yothin Jinjarak

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: We define the notion of a ‘de facto fiscal space’ of a country as the inverse of the tax-years itwould take to repay the public debt. Specifically, we measure the outstanding public debtrelative to the de facto tax base, where the latter measures the realized tax collection, averagedacross several years to smooth for business cycle fluctuations. We apply this concept to accountfor the cross-country variation in the fiscal stimulus associated with the global crisis of 2009-2010. We find that greater de facto fiscal space prior to the global crisis, higher GDP/capita,higher financial exposure to the US, and lower trade openness were associated with a higherfiscal stimulus/GDP during 2009-2010. Joint estimation indicates that higher trade openness wasassociated with lower fiscal stimulus and higher depreciation rate during 2009-2010.

Keywords: Social and Behavioral Sciences; Fiscal space; fiscal stimulus; trade openness (search for similar items in EconPapers)
Date: 2010-12-01
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Citations: View citations in EconPapers (37)

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Working Paper: De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment (2010)
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