On Graduation from Fiscal Procyclicality

DSpace/Manakin Repository

On Graduation from Fiscal Procyclicality

Citable link to this page


Title: On Graduation from Fiscal Procyclicality
Author: Frankel, Jeffrey A.; Vulentin, Guillermo; Vegh, Carlos A

Note: Order does not necessarily reflect citation order of authors.

Citation: Frankel, Jeffrey A., Carlos A. Vegh, and Guillermo Vulentin. 2012. On Graduation from Fiscal Procyclicality. HKS Faculty Research Working Paper Series RWP12-011, John F. Kennedy School of Government, Harvard University.
Full Text & Related Files:
Abstract: In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. In line with existing literature, we confirm the role of increased financial integration and lower output volatility in reducing overall procyclicality. In this paper, however, we focus on the role played by the quality of institutions. Indeed, the quality of institutions seems to be a key determinant of a country's ability to graduate. We provide a formal analysis, controlling for the endogeneity of institutions and other determinants of fiscal procyclicality, that strongly suggests that there is a causal link running from stronger institutions to less procyclical or more countercyclical fiscal policy.
Published Version: http://web.hks.harvard.edu/publications/citation.aspx?PubId=8329
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:8694931
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)


Search DASH

Advanced Search