What Determines Fiscal Balances? An Empirical Investigation in Determinants of Changes in OECD Budget Balances
42 Pages Posted: 10 Jan 2005
Date Written: December 2004
Abstract
Fiscal balances have deteriorated quickly in recent years, bringing back to the foreground the question what factors help explain such sharp changes. This paper takes a broad perspective at the issue regarding countries included, the range of explanatory variables tried, and the time-span. The empirical analysis shows that changes in budget balances are affected by debt growth, macroeconomic developments and political factors. In particular, we find that the run-up to EMU induced additional consolidation in Europe and that budget balances deteriorate markedly in election years. Asset prices also may affect budgets, but the impact remains limited in normal times.
Keywords: Fiscal policy, asset prices, economic growth, budget balance, stability and growth pact
JEL Classification: E61, E62, H61, H62
Suggested Citation: Suggested Citation
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