Procyclicality Of Fiscal Policy In Emerging Countries: The Cycle Is The Trend
Source: Central Bank of Chile
This paper uses the Aguiar and Gopinath (2007) methodology in order to estimate whether "The cycle is the trend" in 23 emerging markets and 22 OECD economies. These estimates are then used to test whether procyclical fiscal policy in emerging countries is due to persistent shocks to per-capita GDP. The authors find support for this hypothesis. While both developed and emerging countries have a procyclical policy for investment expenditure, procyclicality is evident in emerging countries also for government consumption and transfers.