Working Paper: NBER ID: w16539
Authors: Joshua Aizenman; Yothin Jinjarak
Abstract: We define the notion of a 'de facto fiscal space' of a country as the inverse of the tax-years it would take to repay the public debt. Specifically, we measure the outstanding public debt relative to the de facto tax base, where the latter measures the realized tax collection, averaged across several years to smooth for business cycle fluctuations. We apply this concept to account for the cross-country variation in the fiscal stimulus associated with the global crisis of 2009-2010. We find that greater de facto fiscal space prior to the global crisis, higher GDP/capita, higher financial exposure to the US, and lower trade openness were associated with a higher fiscal stimulus/GDP during 2009-2010. Joint estimation indicates that higher trade openness was associated with lower fiscal stimulus and higher depreciation rate during 2009-2010.
Keywords: Fiscal Space; Fiscal Stimulus; Global Crisis
JEL Codes: E62; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater de facto fiscal space prior to the global crisis (H69) | higher fiscal stimulus to GDP (E62) |
| higher GDP per capita (E20) | higher fiscal stimulus to GDP (E62) |
| lower trade openness (F19) | higher fiscal stimulus to GDP (E62) |
| higher financial exposure to the US (F65) | higher fiscal stimulus to GDP (E62) |