Government Size and Output Volatility: Should We forsake Automatic Stabilization?

Pisani-Ferry, Jean; Debrun, Xavier; Sapir, André

doi:10.5089/9781451869828.001

Cited by 16 publications

(2 citation statements)

References 22 publications

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“…Conversely, it is also possible that government size can cause an increase in the output volatility. For example, Pisani‐Ferry, Debrun, and Sapir (2008) claim that increasing government spending may enlarge the non‐volatile part of GDP, but also increase the consumption and investment volatility that might cause an increase in output volatility. Similarly, Fatás and Mihov (2003) and Hakura (2007) argue that discretionary fiscal policy might increase output volatility.…”

Section: Datamentioning

confidence: 99%

Does economic complexity reduce output volatility in developing countries?

Güneri

Yalta

2020

Bulletin of Econ Res

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Economic complexity measures the productive knowledge embedded in an economy by analysing the export structure of countries. Although the recent literature suggests that economic complexity might arise as a useful tool to lower output volatility by both diversifying export bundles and increasing the sophistication of exports, the empirical evidence on this issue is rather scarce. We contribute to the existing literature by investigating the effect of economic complexity on output volatility for a large set of developing countries. To this end, we apply a panel vector auto regression (PVAR) methodology, which allows us to capture the dynamic interrelationships between variables. The findings of the paper robust to the alternative specifications reveal that economic complexity affects output volatility negatively. Hence, economic policies aimed at diversifying productive capabilities and export bundles should be one of the major priorities in developing countries.

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Section: Datamentioning

confidence: 99%

Does economic complexity reduce output volatility in developing countries?

Güneri

Yalta

2020

Bulletin of Econ Res

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“…Fatás and Mihov (2001) estimate the effect of government spending on output volatility for 20 OECD countries , and report that regardless of the volatility or government size measure, the effect on output is always stabilizing. Other studies emphasize that the stabilizing effect of government spending exhibits time variation (Pisani-Ferry, Debrun and Sapir, 2008), is subject to nonlinearity depending on the actual level of government expenditures (Crespo Cuaresma, Reitschuler and Silgoner, 2011;Collard, Dellas and Tavlas, 2017) and could suffer from endogeneity (Carmignani, Colombo and Tirelli, 2011). In addtion, Martinez-Mongay and Sekkat (2005) highlight that the composition of public finances, in particular the tax mix, matters for the impact of fiscal policy on macroeconomic stability.…”

Section: Introductionmentioning

confidence: 99%

What Drives Output Volatility? The Role of Demographics and Government Size Revisited

Iseringhausen

Vierke

2018

Oxf Bull Econ Stat

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This paper studies the determinants of output volatility in a panel of 22 OECD countries. In contrast to the existing literature, we avoid ad hoc estimates of volatility based on rolling windows, and we account for possible non‐stationarity. Specifically, output volatility is modelled within an unobserved components model where the volatility series is the outcome of both macroeconomic determinants and a latent integrated process. A Bayesian model selection approach tests for the presence of the non‐stationary component. The results point to demographics and government size as important determinants of macroeconomic (in)stability. A larger share of prime‐age workers is associated with lower output volatility, while higher public expenditure increases volatility.

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Revisiting the countercyclicality of fiscal policy

Jalles,

Kiendrebeogo,

Lam

et al. 2024

Empir Econ

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This paper provides a novel dataset of time-varying measures on the degree of countercyclicality of fiscal policies for advanced and developing economies between 1980 and 2021. The use of time-varying measures of fiscal stabilization, with special attention to potential endogeneity issues, overcomes the major limitation of previous studies and allows the analysis to account for both country-specific as well as global factors. The paper also examines the key determinants of countercyclicality of fiscal policy with a focus on factors as severe crises, informality, financial development and governance. Empirical results show that (i) fiscal policy tends to be more countercyclical during severe crises than typical recessions, especially for advanced economies; (ii) fiscal countercyclicality has increased over time for many economies over the last two decades; (iii) discretionary and automatic countercyclicality are both strong in advanced economies but acyclical (at times procyclical) in low-income countries; (iv) fiscal countercyclicality operates primarily through the expenditure channel, particularly for social benefits; and (v) better financial development, larger government size and stronger institutional quality are associated with larger countercyclical effects of fiscal policy. Our results are robust to various specifications and endogeneity checks.

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Government Size and Output Volatility: Should We forsake Automatic Stabilization?

Abstract: This Working Paper should not be reported as representing the views of the IMF.

Cited by 16 publications

References 22 publications

Does economic complexity reduce output volatility in developing countries?

Does economic complexity reduce output volatility in developing countries?

What Drives Output Volatility? The Role of Demographics and Government Size Revisited

Revisiting the countercyclicality of fiscal policy

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