Fiscal Policy and Macroeconomic Stability: Automatic Stabilizers Work, Always and Everywhere

May 1, 2010

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Format: Chicago

Xavier Debrun, and Radhicka Kapoor. Fiscal Policy and Macroeconomic Stability: Automatic Stabilizers Work, Always and Everywhere, (USA: International Monetary Fund, 2010) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper revisits the link between fiscal policy and macroeconomic stability. Two salient features of our analysis are (1) a systematic test for the government’s ambivalent role as a shock absorber and a shock inducer—removing a downward bias present in existing estimates of the impact of automatic stabilizers—and (2) a broad sample of advanced and emerging market economies. Results provide strong support for the view that fiscal stabilization operates mainly through automatic stabilizers. Also, the destabilizing impact of policy changes not systematically related to the business cycle may not be as robust as suggested in the literature.

Subject: Automatic stabilizers, Central bank autonomy, Expenditure, Fiscal policy, Fiscal stabilization

Keywords: Central bank, Government size, Output gap, Real GDP, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/111
Stock No:

WPIEA2010111
ISBN:

9781455200702
ISSN:

1018-5941

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