Political, Institutional, and Economic Factors Underlying Deficit Volatility

Luca Agnello, Luca Agnello

Risultato della ricerca: Articlepeer review

12 Citazioni (Scopus)


It is well known that fiscal policy can counter-cyclically smooth out the effect of unexpected shocks and public deficit volatility may reflect the (optimal) policy response to them. However, the welfare losses associated to fiscal instability are also an important challenge for many countries, as it typically implies an inefficient allocation of resources, higher sovereign risk premium and an inadequate provision of public services. In this paper, we empirically analyze the political, institutional, and economic sources of public deficit volatility. Using the system-generalized method-of-moments (GMM) estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper-inflation episodes and for countries with a high degree of openness.
Lingua originaleEnglish
pagine (da-a)719-732
Numero di pagine14
RivistaReview of International Economics
Stato di pubblicazionePublished - 2013

All Science Journal Classification (ASJC) codes

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