Citation

Discussion Paper Details

Please find the details for DP8749 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Fiscal Policy as a Stabilization Tool

Author(s): Antonio Fat�s and Ilian Mihov

Publication Date: January 2012

Keyword(s): Business Cycles, Fiscal Policy and Stabilization

Programme Area(s): International Macroeconomics

Abstract: We analyze empirically the cyclical behavior of fiscal policy among a group of 23 OECD countries. We introduce a framework to capture fiscal policy stance in a way that brings together automatic stabilizers and discretionary fiscal policy. We show that, for most countries, automatic changes in the budget balance play a stronger role in stabilizing output than discretionary fiscal policy. When compared across countries, changes in fiscal policy stance are predominantly linked to differences in government size. Tax revenues are close to being proportional to GDP and, combined with a relatively stable government spending, this leads to a countercyclical budget balance, which in turn helps stabilize aggregate demand. Furthermore, countries with less responsive automatic stabilizers, like the United States, tend to use countercyclical discretionary fiscal policy more aggressively. For all countries discretionary policy has become more aggressive in recent decades.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8749

Bibliographic Reference

Fat�s, A and Mihov, I. 2012. 'Fiscal Policy as a Stabilization Tool'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8749