A Modern History of Fiscal Prudence and Profligacy
54 Pages Posted: 28 Feb 2013
Date Written: January 2013
Abstract
We draw on a newly collected historical dataset of fiscal variables for a large panel of countries — to our knowledge, the most comprehensive database currently available — to gauge the degree of fiscal prudence or profligacy for each country over the past several decades. Specifically, our dataset consists of fiscal revenues, primary expenditures, the interest bill (and thus both the primary and the overall fiscal deficit), the government debt, and gross domestic product, for 55 countries for up to two hundred years. For the first time, a large cross country historical data set covers both fiscal stocks and flows. Using Bohn’s (1998) approach and other tests for fiscal sustainability, we document how the degree of prudence or profligacy varies significantly over time within individual countries. We find that such variation is driven in part by unexpected changes in potential economic growth and sovereign borrowing costs.
Keywords: Cross country analysis, Fiscal policy, Fiscal sustainability, budget constraint, budget deficits, central government expenditure, debt sustainability, economic growth, expansionary fiscal, expansionary fiscal policies, expenditure ratios, fiscal adjustment, fiscal affairs, fiscal affairs department, fiscal aggregates, fiscal balance, fiscal balances, fiscal behavior, fiscal consolidation, fiscal consolidation efforts, fiscal consolidations, fiscal crisis, fiscal data, fiscal deficit, fiscal discipline, fiscal policies, fiscal policy, fiscal policy decisions, fiscal policy response, fiscal policy responses, fiscal position, fiscal profligacy, fiscal prudence, fiscal reaction, fiscal reaction
JEL Classification: H62, H63
Suggested Citation: Suggested Citation