How to limit fiscal procyclicality: the role of exchange rate regimes, fiscal rules and institutions

Kady Keita () and Camelia Romocea Turcu
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Kady Keita: Université d’Orléans, CNRS, LEO and World Bank

No 2019.01, Working Papers from International Network for Economic Research - INFER

Abstract: We explore how fi scal rules, exchange rate regimes and institutional quality affect the cyclical behaviour of scal policy (i.e how government spending responds to GDP fluctuations). We perform our analysis on a panel of 153 advanced, emerging and developing countries over the period 1993-2015 using LGWOLS and 2SLS estimators. We find that the adoption of fi scal rules alone is not suffcient to promote counter-cyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality espcially in countries with exible exchange rate regimes rather than in countries with fixed exchange rates. We also fi nd that the disciplining effect of sfical rules depends on the type of rule.

Keywords: Cyclicality of fiscal policy; Exchange rate regimes; Fiscal rules; Institutions; 2SLS (search for similar items in EconPapers)
JEL-codes: E F O (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:inf:wpaper:2019.01

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