Fiscal Space and Increasing Fiscal Resilience
Aizenman, Joshua; Jinjarak, Yothin; Thi, Hien; Nguyen, Kim; Park, Donghyun | May 2019
Abstract
The paper compares fiscal cyclicality across regions and countries from 1960 to 2016. It finds that more than half of 170 countries analyzed in seven regions had, in more recent years, limited fiscal space, and that their fiscal policy was either cyclical or procyclical. This was particularly apparent since the 2008–2009 global financial crisis, which was marked by increased procyclical government spending when accounting for net acquisition of nonfinancial assets and capital expenditure. We construct a limited-fiscal-capacity statistic, measured by public debt–average tax revenue ratio and its volatility, which is found to be positively associated with fiscal procyclicality. The cyclicality is asymmetric: on average, a more indebted government (relative to the tax base) spends more in good times and cuts back spending indifferently compared with low-debt countries in bad times. Having sovereign wealth funds is also associated with larger countercyclicality. An enduring interest rate rise entails diminished 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.
Citation
Aizenman, Joshua; Jinjarak, Yothin; Thi, Hien; Nguyen, Kim; Park, Donghyun. 2019. Fiscal Space and Increasing Fiscal Resilience. © Asian Development Bank. http://hdl.handle.net/11540/10201. License: CC BY 3.0 IGO.ISSN
2313-6537 (print)
2313-6545 (electronic)
Keywords
Financial Stability
Financial Management System
Financial Restructuring
Capital Market Development
Market Development
Economics
Erosion
International Economics
Macroeconomic
Macroeconomic Analysis
Performance Evaluation
Impact Evaluation
Foreign and Domestic Financing
Foreign Direct Investment
International Financial Market
Multilateral Financial Institutions
Economic Recession
Market
Crisis
Economic indicators
Growth models
Gross domestic product
Macroeconomics
Economic forecast
Business Financing
Investment Requirements
Corruption
Money laundering
Business recessions
Multilateral development banks
Regulatory reform
Capital
Exports
Economic development projects
Economic policy
Economic forecasting
Investment Requirements
Banks
International banks and banking
Capital movements
Central banks and banking
Bills of exchange
Swaps
Banks and banking
Financial crisis
Credit control
Credit allocation
Capital market
International liquidity
Liquidity
Exchange rate
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Citable URI
http://hdl.handle.net/11540/10201Metadata
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