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Cyclical Bias in Government Spending: Evidence from the OECD

Author

Listed:
  • Hercowitz, Z.
  • Strawczynski, M.

Abstract

This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. Using a panel data set covering the 1975-1995 period, the main finding is that the prolonged rise in this ratio is linked to a cyclical bias; the spending/GDP ratio increased during recessions and stayed approximately constant during expansions. Also analyzed are the cyclical changes in the composition of government spending (goods and services, transfers and subsidies, and capital expenditure), in tax revenues, and a possible link between the cyclical bias and an index of government weakness.

Suggested Citation

  • Hercowitz, Z. & Strawczynski, M., 1999. "Cyclical Bias in Government Spending: Evidence from the OECD," Papers 6-99, Tel Aviv.
    • Handle: RePEc:fth:teavfo:6-99
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    Citations

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    Cited by:

    1. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
    2. Peter Claeys, 2006. "Policy mix and debt sustainability: evidence from fiscal policy rules," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(2), pages 89-112, June.
    3. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
    4. Céspedes, Luis Felipe & Velasco, Andrés, 2014. "Was this time different?: Fiscal policy in commodity republics," Journal of Development Economics, Elsevier, vol. 106(C), pages 92-106.
    5. Philip R. Lane, 2002. "Monetary-Fiscal Interactions in an Uncertain World: Lessons for European Policymakers," Trinity Economics Papers 200213, Trinity College Dublin, Department of Economics.
    6. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
    7. Umoh, O. J. & Onye, Kenneth U. & Atan, Johnson A., 2018. "Political and Institutional Determinants of Fiscal Policy Persistence in West Africa," MPRA Paper 88452, University Library of Munich, Germany.
    8. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.

    More about this item

    Keywords

    FISCAL POLICY ; PUBLIC EXPENDITURES ; GOVERNMENT;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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