Deep Roots of Fiscal Behavior

41 Pages Posted: 10 Apr 2014

See all articles by Serhan Cevik

Serhan Cevik

International Monetary Fund (IMF)

Katerina Teksoz

Columbia University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

This paper investigates the determinants of fiscal policy behavior and its time-varying volatility, using panel data for a broad set of advanced and emerging market economies during the period 1990–2012. The empirical results show that discretionary fiscal policy is influenced by policy inertia, the level of public debt, and the output gap in both advanced and emerging market economies. In addition, the paper finds that macro-financial factors - such as real exchange rate, financial development, interest rates, asset prices, and natural resource rents - and demographic and institutional factors - such as the old-age dependency ratio, the quality of institutions, and policy anchors such as fiscal rules and IMF-supported stabilization programs - tend to have a significant effect on fiscal policy behavior. The results also indicate that higher government debt leads to more volatile fiscal behavior, while fiscal rules and higher institutional quality reduce the volatility of fiscal policy over time.

Keywords: Fiscal policy, Developed countries, Emerging markets, Cross country analysis, Economic models, fiscal reaction functions, fiscal policy volatility, budget balance, discretionary fiscal policy, primary budget balance, fiscal rules, fiscal behavior, public debt, budget constraint, budget deficits, fiscal sustainability, fiscal solvency, public finances, fiscal balance, taxation, fiscal positions, fiscal policy response, fiscal stimulus, fiscal impact, government spending, fiscal strategy, fiscal studies, fiscal policies, fiscal policy decisions, fiscal imbalances, fiscal outcomes, public expenditures, fiscal deficits, fiscal vulnerabilities, fiscal consolidation efforts, fiscal consequences, f

JEL Classification: E60, E62, G01, H30, H62

Suggested Citation

Cevik, Serhan and Teksoz, Katerina, Deep Roots of Fiscal Behavior (March 2014). IMF Working Paper No. 14/45, Available at SSRN: https://ssrn.com/abstract=2423241

Serhan Cevik (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Katerina Teksoz

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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