Fiscal Space and Government-Spending & Tax-Rate Cyclicality Patterns: A Cross-Country Comparison, 1960-2016

Joshua Aizenman, Yothin Jinjarak, Hien Thi Kim Nguyen and Donghyun Park

No 25012, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper compares fiscal cyclicality across advanced and developing countries, geographic regions as well as income levels over 1960–2016 period, then identifies factors that explain countries’ government spending and tax-policy cyclicality. Public debt/tax base ratio provides a more robust explanation for government-spending cyclicality than public debt/output ratio but the reverse is true when capital investment is accounted for in government spending. On average, a more indebted (relative to tax base) government spends more in good times and cuts back spending indifferently compared with a low-debt country in bad times. We also find that country’s sovereign wealth fund has a countercyclical effect in our estimation. Finally, the analysis depicts a significant economic impact of an enduring interest-rate rise on fiscal space, that is, a 10% increase of public debt/tax base ratio is associated with an upper bound of 5.9% increase in government-spending procyclicality.

JEL-codes: F4 F41 H2 H3 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-mac, nep-opm, nep-pbe and nep-sea
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Published as Joshua Aizenman & Yothin Jinjarak & Hien Thi Kim Nguyen & Donghyun Park, 2019. "Fiscal Space and Government-Spending & Tax-Rate Cyclicality Patterns: A Cross-Country Comparison, 1960–2016," Journal of Macroeconomics, .

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Working Paper: Fiscal space and government-spending & tax-rate cyclicality patterns: A cross-country comparison, 1960-2016 (2018)
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