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

Fabrizio Coricelli and Riccardo Fiorito ()

No 13106, Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli

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 percent 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 in 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.

JEL-codes: E32 E62 H5 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://static.luiss.it/RePEc/pdf/lleewp/13106.pdf (application/pdf)

Related works:
Working Paper: Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure (2013)
Working Paper: Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure (2013)
Working Paper: Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure (2013)
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:lui:lleewp:13106

Access Statistics for this paper

More papers in Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli Contact information at EDIRC.
Bibliographic data for series maintained by Giovanna Vallanti ( this e-mail address is bad, please contact ).