Fiscal Transparency and Procyclical Fiscal Policy

Publikation: Working paperForskning


  • Wp-10-01

    Forlagets udgivne version, 555 KB, PDF-dokument

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.
UdgiverDepartment of Economics, University of Copenhagen
Antal sider36
StatusUdgivet - 2010

Bibliografisk note

JEL Classification: D72, E32, E62

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