IDEAS home Printed from https://ideas.repec.org/a/bis/bisqtr/0912g.html
   My bibliography  Save this article

Government size and macroeconomic stability

Author

Listed:
  • M S Mohanty
  • Fabrizio Zampolli

Abstract

This article examines the potential role of government size in explaining differences in output volatility across OECD countries in the context of the latest recession. There is some evidence to suggest that government size as measured by the share of expenditure in GDP has a modest negative association with output volatility. Moreover, this link seems to have weakened further since the mid-1980s. Factors such as trade openness and exposure to terms-of-trade shocks as well as volatility of inflation appear important. Interestingly, the same set of factors seems to matter in explaining the severity of recession in OECD countries.

Suggested Citation

  • M S Mohanty & Fabrizio Zampolli, 2009. "Government size and macroeconomic stability," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:0912g
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/qtrpdf/r_qt0912g.pdf
    Download Restriction: no
    File URL: http://www.bis.org/publ/qtrpdf/r_qt0912g.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
    2. repec:zbw:bofrdp:2005_008 is not listed on IDEAS
    3. Marco Buti & Carlos Martinez-Mongay & Khalid Sekkat & Paul van den Noord, 2003. "Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?," CESifo Economic Studies, CESifo Group, vol. 49(1), pages 123-140.
    4. Matti Virén, 2005. "Government size and output volatility: is there a relationship?," Macroeconomics 0508025, University Library of Munich, Germany.
    5. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    6. Andres, Javier & Domenech, Rafael & Fatas, Antonio, 2008. "The stabilizing role of government size," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 571-593, February.
    7. Stephen G Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2005. "Assessing the Sources of Changes in the Volatility of Real Growth," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & David Norman (ed.),The Changing Nature of the Business Cycle, Reserve Bank of Australia.
    8. N/A, 2009. "On the Recession," Local Economy, London South Bank University, vol. 24(3), pages 253-253, May.
    9. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    10. Christina D. Romer, 1999. "Changes in Business Cycles: Evidence and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 23-44, Spring.
    11. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
    12. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 877, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nwosa Philip I. & Ehinomen Chris & Ugwu Ephraim, 2020. "Output Volatility and Government Size in Nigeria," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 286-301, June.
    2. Rene Cabral Torres, 2012. "Capital and Labor Mobility and the Size of Sub-national Governments: Evidence from a Panel of Mexican States," CID Working Papers 231, Center for International Development at Harvard University.
    3. Rieth, Malte & Checherita-Westphal, Cristina & Attinasi, Maria-Grazia, 2016. "Personal income tax progressivity and output volatility: Evidence from OECD countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 49(3), pages 968-996.
    4. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    5. Kuncoro Haryo, 2016. "The Credibility of Fiscal Rules Policy and Business Cycle Volatility," Scientific Annals of Economics and Business, Sciendo, vol. 63(2), pages 209-224, June.
    6. Joseph I. Amuka & Miracle O. Ezeoke & Fredrick O. Asogwa, 2016. "Government Spending Pattern and Macroeconomic Stability: A Vector Autoregressive Model," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1930-1936.
    7. Kashif Munir & Nimra Riaz, 2019. "Fiscal Policy and Macroecomonic Stability in South Asian Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 228(1), pages 13-33, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean Pisani-Ferry & Mr. Xavier Debrun & André Sapir, 2008. "Government Size and Output Volatility: Should We Forsake Automatic Stabilization?," IMF Working Papers 2008/122, International Monetary Fund.
    2. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
    3. Torben Andersen, 2005. "Is there a Role for an Active Fiscal Stabilization Policy?," CESifo Working Paper Series 1447, CESifo.
    4. Markus Leibrecht & Johann Scharler, 2015. "Government Size and Business Cycle Volatility: How Important are Credit Constraints?," Economica, London School of Economics and Political Science, vol. 82(326), pages 201-221, April.
    5. David B. Gordon & Eric M. Leeper, 2005. "Are Countercyclical Fiscal Policies Counterproductive?," NBER Working Papers 11869, National Bureau of Economic Research, Inc.
    6. Jan Veld & Martin Larch & Marieke Vandeweyer, 2013. "Automatic Fiscal Stabilisers: What They Are and What They Do," Open Economies Review, Springer, vol. 24(1), pages 147-163, February.
    7. AILINCA, Alina Georgeta, 2014. "Automatic Social Stabilizers What They Are And How They Function," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 18(3), pages 45-57.
    8. Nwosa Philip I. & Ehinomen Chris & Ugwu Ephraim, 2020. "Output Volatility and Government Size in Nigeria," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 286-301, June.
    9. Erkam Sari & Hakan Hotunluoglu, 2021. "Government Size and Openness: Insights Basedon Country Classifications," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 7(1), pages 1-16, June.
    10. Tae-Jeong Kim & Mihye Lee & Robert Dekle, 2014. "The Impact of Population Aging on the Countercyclical Fiscal Stance in Korea, with a Focus on the Automatic Stabilizer," Working Papers 2014-21, Economic Research Institute, Bank of Korea.
    11. Thomas J. Kniesner & James P. Ziliak, 2002. "Tax Reform and Automatic Stabilization," American Economic Review, American Economic Association, vol. 92(3), pages 590-612, June.
    12. Wei Dong & Geoffrey Dunbar & Christian Friedrich & Dmitry Matveev & Romanos Priftis & Lin Shao, 2021. "Complementarities Between Fiscal Policy and Monetary Policy—Literature Review," Discussion Papers 2021-4, Bank of Canada.
    13. Jarko Fidrmuc & Johann Scharler, 2013. "Financial development and the magnitude of business cycle fluctuations in OECD countries," Applied Economics Letters, Taylor & Francis Journals, vol. 20(6), pages 530-533, April.
    14. Yasushi Iwamoto, 2005. "Interaction between Monetary and Fiscal Policy and the Policy Mix, Theoretical Consideration and Japanese Experience," CARF F-Series CARF-F-043, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    15. Şen, Hüseyin & Kaya, Ayşe, 2021. "Output-volatility reducing effects of automatic stabilizers: Policy implications for EMU member states," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1388-1414.
    16. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
    17. Rieth, Malte & Checherita-Westphal, Cristina & Attinasi, Maria-Grazia, 2016. "Personal income tax progressivity and output volatility: Evidence from OECD countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 49(3), pages 968-996.
    18. Moldovan, Ioana R., 2010. "Countercyclical taxes in a monopolistically competitive environment," European Economic Review, Elsevier, vol. 54(5), pages 692-717, July.
    19. Erauskin, Iñaki, 2015. "The net foreign asset position and government size," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 130-148.
    20. Brückner, Markus & Gradstein, Mark, 2013. "Exogenous volatility and the size of government in developing countries," Journal of Development Economics, Elsevier, vol. 105(C), pages 254-266.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:bisqtr:0912g. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.