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    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
    Show allCollapse
    Citable URI
    http://hdl.handle.net/11540/10201
    Metadata
    Show full item record
    Thumbnail
    ewp-582-fiscal-space-fiscal-resilience.pdf (354.3Kb)
    Author
    Aizenman, Joshua
    Jinjarak, Yothin
    Thi, Hien
    Nguyen, Kim
    Park, Donghyun
    Theme
    Finance
    Economics

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    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise