IMF Working Papers

The Economic Impact of Fiscal Policy Uncertainty: Evidence from a New Cross-Country Database

By Gee Hee Hong, Shikun (Barry) Ke, Anh D. M. Nguyen

September 27, 2024

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Gee Hee Hong, Shikun (Barry) Ke, and Anh D. M. Nguyen "The Economic Impact of Fiscal Policy Uncertainty: Evidence from a New Cross-Country Database", IMF Working Papers 2024, 209 (2024), accessed November 21, 2024, https://doi.org/10.5089/9798400288128.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Fiscal policy uncertainty (FPU)—ambiguity in government spending and tax plans, as well as in public debt valuation—is widely regarded as a source of economic and financial disruptions. However, assessing its impact has so far been limited to a few large economies. In this paper, we construct a novel database of news-based fiscal policy uncertainty for 189 countries. Importantly, we track fiscal uncertainty events that generate global attention that we refer to as the “global fiscal policy uncertainty." This uncertainty has contractionary effects, reducing industrial production in both advanced and emerging market economies, with impacts greater than country-specific fiscal policy uncertainty. Additionally, global fiscal policy uncertainty raises sovereign borrowing costs and generates synchronous movements in the global financial variables, even after accounting for US monetary policy shocks.

Subject: Expenditure, Industrial production, Production, Public debt

Keywords: Fiscal policy uncertainty, Global, Industrial production, News-based uncertainty, Propagation of global shocks, VAR

Publication Details

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