NDLI: Is Fiscal Policy Always Counter- (Pro-) Cyclical? The Role of Public Debt and Fiscal Rules

Content Provider	Semantic Scholar
Author	Combes, Jean-Louis Minea, Alexandru Sow, Moussé
Copyright Year	2014
Abstract	This paper investigates the reaction of fiscal policy to the business cycle, depending on the level of public debt within a panel of developed and emerging economies over the period 1990-2011. While we strengthen the well-established finding that fiscal policy is counter cyclical or neutral in developed and emerging economies, additional outcomes emerge from this study. First, we find a non-linear response of fiscal policy to the business cycle, conditional upon the outstanding debt stock. Interestingly, our results show that when the public debt-to-GDP ratio goes beyond our estimated threshold of 86%, fiscal policy behaves rather pro cyclically. Our second step estimations give evidence to the effectiveness of FR in dampening the impact of public debt burden on the implementation of counter cyclical fiscal policy. This positive effect stems from the fiscal discipline induced by the adoption of rules. Our econometric approaches overcome the endogeneity problem and our findings are robust to sensitivity checks.
File Format	PDF HTM / HTML
Alternate Webpage(s)	http://www.touteconomie.org/afse2014/index.php/meeting2014/lyon/paper/download/353/187
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article

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