Fiscal Policy and Regional Output Volatility: Evidence from Russia

43 Pages Posted: 5 Jul 2013

See all articles by Markus Eller

Markus Eller

Oesterreichische Nationalbank (OeNB)

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Zuzana Fungáčová

Bank of Finland - Institute for Economies in Transition (BOFIT)

Date Written: June 17, 2013

Abstract

This paper investigates the relationship between fiscal policy and output volatility in Russian regions between 2000 and 2009. System GMM estimation techniques are used to account for potential endogeneity between output volatility and fiscal developments. Our main finding is that fiscal activism, proxied by various measures of discretionary fiscal policy, contributes to output volatility and so induces macroeconomic instability at the regional level in Russia. This result corroborates previous studies using cross-country data. To reduce business cycle fluctuations, it would be necessary to curtail pro-cyclical fiscal activism at the regional level, e.g. via fiscal rules and sound institutions of fiscal federalism.

Keywords: output volatility, automatic stabilizers, discretionary fiscal policy, dynamic panel models, Russia

JEL Classification: E32, E62, R11

Suggested Citation

Eller, Markus and Fidrmuc, Jarko and Fungacova, Zuzana, Fiscal Policy and Regional Output Volatility: Evidence from Russia (June 17, 2013). BOFIT Discussion Paper No. 13/2013, Available at SSRN: https://ssrn.com/abstract=2289771 or http://dx.doi.org/10.2139/ssrn.2289771

Markus Eller (Contact Author)

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
Vienna, A-1090
Austria
+43 1 404 20-5227 (Phone)
+43 1 404 20-045227 (Fax)

HOME PAGE: http://www.oenb.at/en/Monetary-Policy/Research/Researchers/Markus-Eller.html

Jarko Fidrmuc

Zeppelin University Friedrichshafen ( email )

Am Seemooser Horn 20
Friedrichshafen, 88045
Germany

Zuzana Fungacova

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Snellmaninaukio
PO Box 160
Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/bofit_en/index.htm

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