Short- and Long-Run Fiscal Elasticities: International Evidence

Liu, Kai and Poplawski-Ribeiro, Marcos (2015): Short- and Long-Run Fiscal Elasticities: International Evidence.

Abstract

Using dynamic heterogeneous panel data models, this paper estimates short- and long-run fiscal elasticities with respect to various cyclical factors for more than 90 countries. We find the terms of trade are significant in explaining primary fiscal revenues. Moreover, revenue elasticities with respect to real GDP on average are larger than one in the short-run and bigger in developing countries than in advanced economies both, in the short- and long-run. The analysis highlights the importance of considering short- and long-run elasticities with respect to other effects than the output gap, particularly terms of trade, when computing structural balances.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal elasticities, structural fiscal balances, dynamic heterogeneous panel data model, business cycle
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus

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