On Graduation from Fiscal Procyclicality

Jeffrey Frankel, Carlos A. Vegh and Guillermo Vuletin

No 248, CID Working Papers from Center for International Development at Harvard University

Abstract: In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. We then focus on the role played by the quality of institutions, which appears to be a key determinant of a country's ability to graduate. We show that, even after controlling for the endogeneity of institutions and other determinants of fiscal procyclicality, there is a causal link running from stronger institutions to less procyclical or more countercyclical fiscal policy.

Keywords: Business Cycle; Institutional Quality; Cyclicality; Graduation; Emerging Marke (search for similar items in EconPapers)
JEL-codes: E02 E32 E62 F4 (search for similar items in EconPapers)
Date: 2012-07
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: On graduation from fiscal procyclicality (2013)
Working Paper: On Graduation from Fiscal Procyclicality (2012)
Working Paper: On Graduation from Fiscal Procyclicality (2012)
Working Paper: On Graduation from Fiscal Procyclicality (2012)
Working Paper: On Graduation from Fiscal Procyclicality (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cid:wpfacu:248

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