The Fiscal Smile: The Effectiveness and Limits of Fiscal Stabilizers

30 Pages Posted: 1 Feb 2006

See all articles by Maria Antoinette Silgoner

Maria Antoinette Silgoner

Oesterreichische Nationalbank (OeNB)

Gerhard Reitschuler

University of Innsbruck

Jesús Crespo Cuaresma

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History

Date Written: September 2003

Abstract

We study the smoothing impact of fiscal stabilizers (proxied by government expenditures or revenues) on business cycle volatility for a panel of EU countries in the period 1970-99, The results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels. We present evidence that for government expenditure ratios exceeding an estimated value of about 38 percent, a further expansion in the size of the government could actually lead to an increase in cyclical volatility. This may call for a reconsideration of the use of fiscal stabilizers for business cycle smoothing.

Keywords: Fiscal Stabilizers, Business Cycle Volatility, Nonlinearity

JEL Classification: E62, E63, C23

Suggested Citation

Silgoner, Maria Antoinette and Reitschuler, Gerhard and Crespo Cuaresma, Jesús, The Fiscal Smile: The Effectiveness and Limits of Fiscal Stabilizers (September 2003). IMF Working Paper, Vol. , pp. 1-30, 2003. Available at SSRN: https://ssrn.com/abstract=880263

Maria Antoinette Silgoner (Contact Author)

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Gerhard Reitschuler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Jesús Crespo Cuaresma

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History ( email )

Universitaetsstrasse 15
Innsbruck, A - 6020
Austria

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