Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82132
Authors: 
Andersen, Asger Lau
Holbøll Westh Nielsen, Lasse
Year of Publication: 
2010
Series/Report no.: 
EPRU Working Paper Series 2010-01
Abstract: 
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.
Subjects: 
fiscal transparency
fiscal policy
procyclicality
business cycle
political economy
JEL: 
D72
E32
E62
Document Type: 
Working Paper

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