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Turning a blind eye to policy prescriptions. Exploring the sources of procyclical fiscal behavior at subnational level

Meloni, Osvaldo (2016): Turning a blind eye to policy prescriptions. Exploring the sources of procyclical fiscal behavior at subnational level.

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Abstract

This paper analyses the fiscal behavior of subnational districts in Argentina over the business cycle. I address two questions. Is the fiscal policy of Argentine districts procyclical? If so, what is the theory that best explain procyclicality? The answers come from the estimation of a Vector Error Correction model of a panel that spans 22 years and 24 districts. I found that all categories of revenues and public expenditures, except for Capital Expenditures, were procyclical. The main sources of procyclicality are the political networks, the changes in the amount of oil and gas grants, federal interventions and discretionary intergovernmental transfers.

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