Why Do More Polarized Countries Run More Pro-cyclical Fiscal Policy?∗

نویسنده

  • Jaejoon Woo
چکیده

We study the cyclical behavior of fiscal policy to explain why some countries exhibit pro-cyclical fiscal policy stances–being expansionary in good times and contractionary in bad times. We develop a model that links the polarization of preferences over fiscal spending to the pro-cyclicality bias. We then present evidence that social polarization as measured by income inequality and educational inequality is consistently positively associated with fiscal pro-cyclicality, even after controlling for other determinants from existing theories. We also find a strong negative impact of fiscal pro-cyclicality on economic growth. JEL Classification: E62, E63, H30, O11

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تاریخ انتشار 2008