Working Paper: CEPR ID: DP8009
Authors: Philip R. Lane; Agustín Bénétrix
Abstract: We examine the cross-country dispersion in fiscal outcomes during 2007-2009. In principle, international differences in fiscal policy may be related to differences in optimal fiscal positions, funding constraints, political economy factors and fiscal control problems. We find that the decline in the overall and structural fiscal balances have been larger for those countries experiencing larger increases in unemployment and where credit growth during the pre-crisis period was more rapid. However, there is no systematic co-variation between fiscal outcomes and a larger number of other macroeconomic variables and country characteristics.
Keywords: fiscal policy; global crisis
JEL Codes: E60; F41; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment rates (J64) | decline in overall and structural fiscal balances (H69) |
| pre-crisis credit growth (F65) | decline in overall and structural fiscal balances (H69) |
| political economy factors (P19) | deviations from optimal fiscal positions (E62) |
| funding constraints (H60) | rein in fiscal plans (E62) |
| political fragmentation (F12) | procyclical fiscal policies (E62) |
| procyclical fiscal policies (E62) | increased spending during boom periods (E62) |
| procyclical fiscal policies (E62) | cuts during downturns (E32) |
| economic conditions (E66) | variation in fiscal multipliers (E62) |
| banking crises (G01) | higher fiscal effectiveness (E62) |