Title: Macro-fiscal volatility and the composition of public spending
Authors: RISCADO Sara MariaSTANCIK JURAJVALILA Timo
Citation: FISCAL STUDIES vol. 32 no. 4 p. 511-538
Publisher: WILEY-BLACKWELL
Publication Year: 2011
JRC Publication N°: JRC68597
ISSN: 0143-5671
URI: http://onlinelibrary.wiley.com/doi/10.1111/j.1475-5890.2011.00149.x/abstract
http://publications.jrc.ec.europa.eu/repository/handle/JRC68597
DOI: 10.1111/j.1475-5890.2011.00149.x
Type: Articles in Journals
Abstract: Earlier empirical literature has examined some long- and medium-term aspects of macro-fiscal volatility while leaving its short-term fiscal impact unexplored. To help fill that gap, we examine the impact of macro-fiscal volatility on the composition of public spending. To that end, we analyse a panel of 10 EU countries during 1991–2007. Our results suggest that increases in the volatility of regularly-collected and cyclical revenues such as the VAT and income taxes tend to tilt the expenditure composition in favour of public investment. In contrast, increases in the volatility of ad hoc taxes such as capital taxes tend to favour public consumption spending, albeit only a little. We interpret such volatility innovations as conveying news to the fiscal policymaker about the underlying economic conditions, with especially regularly-collected and cyclical taxes prompting short-term cyclical fine-tuning.
JRC Institute:Institute for Prospective Technological Studies

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