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Fiscal Space and Increasing Fiscal Resilience

Publication | May 2019
Fiscal Space and Increasing Fiscal Resilience

This paper compares fiscal cyclicality across advanced and developing economies in terms of geography and income levels between 1960 and 2016.

It identifies factors that explain government spending and tax-policy cyclicality. On average, a more indebted government spends more in good times and cuts back spending indifferently compared with low-debt economies in bad times. The sovereign wealth funds of economies have a countercyclical effect in our estimation. The analysis depicts a significant economic impact of an interest rate rise on fiscal space: a 10% increase in the public debt–tax base ratio is associated with an upper bound of a 5.6% increase in government-spending procyclicality.

Contents 

  • Introduction
  • Empirical Analysis
  • Economic Significance and Policy Implications
  • Conclusions
  • Appendix: Economy Codes