 On Graduation from Fiscal ProcyclicalityJeffrey Frankel, Carlos A. Vegh and Guillermo Vuletin No 41, Growth Lab Working Papers from Harvard's Growth Lab 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) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:glh:wpfacu:41 Access Statistics for this paper More papers in Growth Lab Working Papers from Harvard's Growth Lab |
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