On the Consequences of Pro-Cyclical Fiscal Policy

There is widespread evidence that pro-cyclical fiscal policies have been prevalent in developing countries and often in some industrial nations. It is therefore surprising that, in contrast to the wealth of studies on the sources of pro-cyclical policy, potential consequences of such seemingly subop...

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Bibliographic Details
Published inFiscal studies Vol. 36; no. 1; pp. 29 - 50
Main Authors McManus, Richard, Ozkan, F. Gulcin
Format Journal Article
LanguageEnglish
Published London Blackwell Publishing Ltd 01.03.2015
Wiley
Subjects
cyclicality of fiscal policy
Developing countries
E62
Economic growth
Economic indicators
Fiscal policy
growth
Growth rate
H20
H30
Inflation
Inflation rates
Manycountries
Original Articles
Studies
Volatility
Wealth
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Summary:There is widespread evidence that pro-cyclical fiscal policies have been prevalent in developing countries and often in some industrial nations. It is therefore surprising that, in contrast to the wealth of studies on the sources of pro-cyclical policy, potential consequences of such seemingly suboptimal policies have been largely ignored in the existing literature. By utilising a comprehensive set of indicators from 114 countries for 1950–2010, we aim to address the following important question: does it matter whether a country adopts a pro-cyclical fiscal policy stance rather than a counter-cyclical one? Our results produce a resounding ‘yes’ to this question. We find that fiscally pro-cyclical countries have lower rates of economic growth, higher rates of output volatility and higher rates of inflation.
Bibliography:istex:4ECDBE1A60387A0E7436AE2C590C065EE56A12EC
Submitted April 2013.
ArticleID:FISC12044
ark:/67375/WNG-QRT7GMCG-N
The authors are grateful to the editor and an anonymous referee, whose comments greatly helped to improve the paper.
ObjectType-Article-1
SourceType-Scholarly Journals-1
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ISSN:0143-5671
1475-5890
DOI:10.1111/j.1475-5890.2015.12044.x