 "When it rains, it pours": fiscal policy, credit constraints and business cycles in emerging and developed economiesWorking Papers from UW-Whitewater, Department of Economics Abstract: Fiscal procyclicality, meaning co-movement between government expenditure and macroeconomic fundamentals, is an important feature of business cycle dynamics for emerging and poor economies. I estimate a panel SVAR to investigate if fiscal policy leads to heightened volatility, reinforcing the cycle in emerging economies. The analysis also sheds light on the role of external financial constraints in shaping fiscal policy. My findings suggest that the response of emerging governments to output uctuations is similar to that of developed governments. However, emerging governments curtail spending in response to increases in the sovereign borrowing rate, which forces their consumption expenditure to act more procyclically. While I find evidence of higher fiscal discretion in emerging economies, the government consumption multiplier is substantially smaller for this group. For this reason, fiscal policy is responsible for a lower share of business cycle volatility in emerging economies than in developed ones. Keywords: Fiscal procyclicality; country risk premium; international business cycles; general government consumption expenditure (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:uww:wpaper:19-01 Access Statistics for this paper More papers in Working Papers from UW-Whitewater, Department of Economics Contact information at EDIRC. |
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