Fiscal Policy Volatility and Growth in Emerging Markets and Developing Economies

This paper studies the volatility of fiscal policy in a large sample of countries with a focus onemerging markets and developing economies and commodity exporters over 1990–2021. The findings show that fiscalpolicy has been more volatile in emerging markets and developing economies than in advanced economies, and incommodity exporters relative to non-commodity exporters over this period. The degree of commodity dependence, andinstitutional and policy variables can explain a large percentage of the cross-country variation in volatility. Theexistence of fiscal rules, a more liberalized capital account, and more flexible exchange rates are all associatedwith lower fiscal policy volatility. The paper also shows the negative macroeconomic consequences of this additionalvolatility on economic growth, finding that, over a 30-year period, it can explain 8 percent of the income gap between the emerging markets and developing economies and advancedeconomies in the sample.