Fiscal Policy Coordination in OECD Countries

This paper deals with fiscal policy coordination. In specifically it focuses on the question of how fiscal policy can be coordinated in the world where countries differ a lot in terms of cyclical behaviour and importance of country-specific shocks and well as the fiscal policy multipliers. To answer this question, we compute cyclical sensitivity measures for different components of the deficit variable and the discretionary measure of fiscal policy for all OECD countries for the period 1960-1996. For that purpose, we use the Blanchard Fiscal Impulse (BFI) measure. The cross-country behaviour and the GDP effects of these measures are then scrutinized. The outcome of this analysis is that very little evidence of fiscal policy coordination can be detected. This result holds even if we take into account the forecast errors in terms of GDP growth.