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Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure

Fabrizio Coricelli and Riccardo Fiorito ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In this paper we suggest a new measure of discretionary government spending for OECD countries over the period 1980-2011. To identify the components of discretionary expenditure, we use the volatility and persistence properties of the expenditure series. Discretionary policy cannot be inertial and should be free from prior obligations. Commonly used measures of discretionary fiscal policy do not satisfy these two criteria. We find that discretionary expenditure accounts on average for about 30 per cent of total primary expenditure, suggesting that most government spending is driven by inertial and automatic components. These features help explain why government expenditure is generally not counter-cyclical even is advanced economies. Furthermore, the small share of discretionary expenditure over total expenditure significantly reduces the room of manoeuvre for counter-cyclical fiscal policy during recessions.

Keywords: Discretion; government spending; volatility; dépense publique; volatilité (search for similar items in EconPapers)
Date: 2013-04
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00820820
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Citations: View citations in EconPapers (6)

Published in 2013

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Working Paper: Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure (2013) Downloads
Working Paper: Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure (2013) Downloads
Working Paper: Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure (2013) Downloads
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