Fiscal space and the procyclicality of fiscal policy: The case for making hay while the sun shines

Utilizing data from 133 countries over the period 1950–2014, we identify fiscal space as a key factor underlying cyclicality of policies. We find that less induces greater procyclicality and show this relationship is nonlinear; in bottom tail distribution need to make significant improvements before they can perform countercyclical policy. Given increasingly dominant role action downturns, highlighted during Covid-19 crisis, these findings clearly indicate importance building good times provide capacity for policy bad times.