Macro-fiscal volatility and the composition of public spending

Arbeitspapier

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 contemporaneous increases in the volatility of regularly collected 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-type of taxes such as capital taxes tend to favour public consumption spending. A possible explanation to these differences concerns news about the underlying economic conditions embedded in short-term volatility changes: the policy maker may be more inclined to increase public investment in response to persistent changes in the economic conditions, while temporary changes may prompt a reaction on consumption spending.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economic and Financial Report ; No. 2010/03

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Other ; National Government Expenditures and Related Policies: General ; Fiscal Policy ; Business Fluctuations; Cycles ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: tax volatility ; public investment ; public consumption

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Riscado, Sara Maria ; Stanécík, Juraj ; Välilä, Timo
• Event: Veröffentlichung
• (who): European Investment Bank (EIB)
• (where): Luxembourg
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/45270
• Last update: 10.03.2025, 11:43 AM CET