Why Is Fiscal Policy Procyclical In MENA Countries?

The optimal fiscal policy is countercyclical, aiming to keep the output close to its potential. Nevertheless, it has been pointed out that developing countries are unable to run countercyclical fiscal policies. Several researchers have attributed these sub optimal fiscal policies to two groups of arguments. The limited access to domestic or external funds may hinder the ability of government to pursue expansionary fiscal policy in bad time. The second group of factors explains that sub-optimal fiscal policies are associated with institutional theories. The standard argument suggests that countries pursuing poor fiscal policies also have weak institutions, widespread corruption, a lack of property rights and repudiation of contract.

Provided by: ERF Topic: CXO Date Added: Nov 2010 Format: PDF

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