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Government Spending Cyclicality: Evidence from Rainfall Shocks as an Instrument for Cyclical Income

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  • Gradstein, Mark
  • Brückner, Markus

Abstract

This research revisits the cyclicality of fiscal policies. To identify and estimate more precisely the magnitude of a causal effect of cyclical income on government spending, we employ annual rainfall data as an instrument for national income in the context of sub-Saharan countries. Our results confirm procyclical behavior of government spending and of tax revenues; debt and deficit are found to be countercyclical. Specifically, government spending is procyclical during upturns and acyclical during downturns. We also find that its procyclicality is correlated with corruption, especially among democracies.

Suggested Citation

  • Gradstein, Mark & Brückner, Markus, 2011. "Government Spending Cyclicality: Evidence from Rainfall Shocks as an Instrument for Cyclical Income," CEPR Discussion Papers 8622, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8622
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    More about this item

    Keywords

    Fiscal policy; Cyclicality;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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