Cyclical Ratcheting in Government Spending: Evidence from the OECD
This paper studies the role of business cycles in the phenomenon of increasing government-spending/GDP ratios in the OECD countries. An empirical framework that includes both long-run and cyclical considerations in the determination of government spending is applied to panel data covering 1975-1998. The main finding is that the prolonged rise in the spending/GDP ratio is partially explained by cyclical upward ratcheting due to asymmetric fiscal behavior: the ratio increases during recessions and is only partially reduced in expansions. The long-run ratcheting effect is estimated as approximately 2% of GDP. Also analyzed are the cyclical changes in the composition of government spending (government consumption, transfers and subsidies, and capital expenditure), as well as a possible link between cyclical ratcheting and government weakness. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Year of publication: |
2004
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Authors: | Hercowitz, Zvi ; Strawczynski, Michel |
Published in: |
The Review of Economics and Statistics. - MIT Press. - Vol. 86.2004, 1, p. 353-361
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Publisher: |
MIT Press |
Saved in:
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