Fiscal Policy Responsiveness, Persistence And Discretion

The authors decompose fiscal policy in three components: responsiveness, persistence and discretion. Using a sample of 132 countries, their results point out that fiscal policy tends to be more persistent than to respond to output conditions. They also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence thereby suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence.