EconPapers    
Economics at your fingertips  
 

On Graduation from Fiscal Procyclicality

Guillermo Vulentin, Carlos Vegh () and Jeffrey Frankel ()

Scholarly Articles from Harvard Kennedy School of Government

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. In line with existing literature, we confirm the role of increased financial integration and lower output volatility in reducing overall procyclicality. In this paper, however, we focus on the role played by the quality of institutions. Indeed, the quality of institutions seems to be a key determinant of a country's ability to graduate. We provide a formal analysis, controlling for the endogeneity of institutions and other determinants of fiscal procyclicality, that strongly suggests that there is a causal link running from stronger institutions to less procyclical or more countercyclical fiscal policy.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Published in HKS Faculty Research Working Paper Series

Downloads: (external link)
http://dash.harvard.edu/bitstream/handle/1/8694931/RWP12-011_Frankel.pdf (application/pdf)

Related works:
Journal Article: On graduation from fiscal procyclicality (2013) Downloads
Working Paper: On Graduation from Fiscal Procyclicality (2012) Downloads
Working Paper: On Graduation from Fiscal Procyclicality (2012) Downloads
Working Paper: On Graduation from Fiscal Procyclicality (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hrv:hksfac:8694931

Access Statistics for this paper

More papers in Scholarly Articles from Harvard Kennedy School of Government Contact information at EDIRC.
Bibliographic data for series maintained by Office for Scholarly Communication ().

 
Page updated 2019-04-22
Handle: RePEc:hrv:hksfac:8694931