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Fiscal policy responsiveness, persistence, and discretion

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Abstract

This paper analyzes the different characteristics of fiscal policy using a two-step estimation procedure. First, we decompose both government spending and government revenue into three components: responsiveness, persistence and discretion. Second, we assess the determinants of these characteristics. Using data from 132 countries, our results show that fiscal policy is more persistent than responsive to economic conditions, which implies that the authorities may have less leeway in the short-run notably to curb spending behavior. In addition, countries characterized by greater fiscal persistence have less discretion and responsiveness. Finally, macroeconomic, institutional and geographic variables explain cross-country variation in fiscal characteristics.

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Authors and Affiliations

  1. Directorate General Economics, European Central Bank, Kaiserstraße 29, 60311, Frankfurt am Main, Germany

    António Afonso & Luca Agnello

  2. Department of Economics, UECE—Research Unit on Complexity and Economics, ISEG/TULisbon—Technical University of Lisbon, R. Miguel Lupi 20, 1249-078, Lisbon, Portugal

    António Afonso

  3. Department of Economics, Business and Finance, University of Palermo, Palermo, Italy

    Luca Agnello & Davide Furceri

  4. OECD, 2 rue André Pascal, 75775, Paris Cedex 16, France

    Davide Furceri

Authors
  1. António Afonso
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  2. Luca Agnello
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  3. Davide Furceri
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Corresponding author

Correspondence to Davide Furceri.

Additional information

UECE is supported by FCT (Fundação para a Ciência e a Tecnologia, Portugal).

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Afonso, A., Agnello, L. & Furceri, D. Fiscal policy responsiveness, persistence, and discretion. Public Choice 145, 503–530 (2010). https://doi.org/10.1007/s11127-009-9577-x

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  • DOI: https://doi.org/10.1007/s11127-009-9577-x

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