Template-Type: ReDIF-Paper 1.0
Author-Name: Jeffrey Frankel
Author-Name: Carlos A. Vegh
Author-Name: Guillermo Vuletin
Title: On Graduation from Fiscal Procyclicality
Abstract: In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical
 fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal
 policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about
 a third of the developing world has been able to escape the procyclicality trap and actually become
 countercyclical. We then focus on the role played by the quality of institutions, which appears
 to be a key determinant of a country's ability to graduate. We show that, even after controlling
 for the endogeneity of institutions and other determinants of fiscal procyclicality, there is a causal
 link running from stronger institutions to less procyclical or more countercyclical fiscal policy.
Creation-Date: 2012-07
Classification-JEL: E62, E32, E02, F4
Keywords: Business Cycle, Institutional Quality, Cyclicality, Graduation, Emerging Marke
Number: 41
Handle: RePEc:glh:wpfacu:41
File-Url: https://growthlab.hks.harvard.edu/sites/projects.iq.harvard.edu/files/growthlab/files/cid_working_paper_248.pdf
File-Format: application/pdf