Submitted July 2011.
The Determinants of the Volatility of Fiscal Policy Discretion†
Version of Record online: 17 MAR 2014
© 2014 The Authors Fiscal Studies © 2014 Institute for Fiscal Studies
Volume 35, Issue 1, pages 91–115, March 2014
How to Cite
Agnello, L. and Sousa, R. M. (2014), The Determinants of the Volatility of Fiscal Policy Discretion. Fiscal Studies, 35: 91–115. doi: 10.1111/j.1475-5890.2014.12024.x
The authors would like to thank the following for helpful comments: the Editor, two anonymous referees and participants at the 2009 Annual Meeting of the European Economic Association and the Econometric Society, the Economic Policies Research Unit (NIPE) seminar organised by the University of Minho, the First International Symposium in Computational Economics and Finance (ISCEF 2010), the 2010 Annual Meeting of the European Public Choice Society, the workshop on ‘International Political Economy and Cross-Border Effects’ organised by Queen Mary University of London and the UECE Conference on Economic and Financial Adjustments in Europe.
- Issue online: 17 MAR 2014
- Version of Record online: 17 MAR 2014
- fiscal policy discretion;
- political instability;
- institutional framework;
This paper investigates the determinants of the volatility of fiscal policy discretion. Using a linear dynamic panel data model for 113 countries from 1980 to 2006 and a system-GMM estimator, we find that an increase in the number of episodes of government crisis, less democracy and presidentialist systems raise the volatility of the discretionary component of fiscal policy. Additionally, we show that countries with larger populations and less flexible exchange rate systems are more insured against uncertainty about the conduct of fiscal policy. Our results are robust to various regional dummy variables, different subsets of countries and the presence of high inflation and crisis episodes.