Fiscal Transparency and Procyclical Fiscal Policy
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Fiscal Transparency and Procyclical Fiscal Policy. / Andersen, Asger Lau; Nielsen, Lasse Holbøll Westh.
Department of Economics, University of Copenhagen, 2010.Research output: Working paper › Research
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TY - UNPB
T1 - Fiscal Transparency and Procyclical Fiscal Policy
AU - Andersen, Asger Lau
AU - Nielsen, Lasse Holbøll Westh
N1 - JEL Classification: D72, E32, E62
PY - 2010
Y1 - 2010
N2 - This paper examines why fiscal policy is procyclical in developing as well as developed countries. We introduce the concept of fiscal transparency into a model of retrospective voting, in which a political agency problem between voters and politicians generates a procyclical bias in government spending. The introduction of fiscal transparency generates two new predictions: 1) the procyclical bias in fiscal policy arises only in good times; and 2) a higher degree of fiscal transparency reduces the bias in good times. We find solid empirical support for both predictions using data on both OECD countries and a broader set of countries.
AB - This paper examines why fiscal policy is procyclical in developing as well as developed countries. We introduce the concept of fiscal transparency into a model of retrospective voting, in which a political agency problem between voters and politicians generates a procyclical bias in government spending. The introduction of fiscal transparency generates two new predictions: 1) the procyclical bias in fiscal policy arises only in good times; and 2) a higher degree of fiscal transparency reduces the bias in good times. We find solid empirical support for both predictions using data on both OECD countries and a broader set of countries.
KW - Faculty of Social Sciences
KW - politisk økonomi
KW - procyclicality
KW - business cycles
KW - political economy
M3 - Working paper
BT - Fiscal Transparency and Procyclical Fiscal Policy
PB - Department of Economics, University of Copenhagen
ER -
ID: 18585897