TY - JOUR
T1 - Cyclical ratcheting in government spending
T2 - Evidence from the OECD
AU - Hercowitz, Zvi
AU - Strawczynski, Michel
PY - 2004/2
Y1 - 2004/2
N2 - This paper studies the role of business cycles in the phenomenon of increasing government-spending/GDP ratios in the OECD countries. An empirical framework that includes both long-run and cyclical considerations in the determination of government spending is applied to panel data covering 1975-1998. The main finding is that the prolonged rise in the spending/GDP ratio is partially explained by cyclical upward ratcheting due to asymmetric fiscal behavior: the ratio increases during recessions and is only partially reduced in expansions. The long-run ratcheting effect is estimated, as approximately 2% of GDP. Also analyzed are the cyclical changes in the composition of government spending (government consumption, transfers and subsidies, and capital expenditure), as well as a possible link between cyclical ratcheting and government weakness.
AB - This paper studies the role of business cycles in the phenomenon of increasing government-spending/GDP ratios in the OECD countries. An empirical framework that includes both long-run and cyclical considerations in the determination of government spending is applied to panel data covering 1975-1998. The main finding is that the prolonged rise in the spending/GDP ratio is partially explained by cyclical upward ratcheting due to asymmetric fiscal behavior: the ratio increases during recessions and is only partially reduced in expansions. The long-run ratcheting effect is estimated, as approximately 2% of GDP. Also analyzed are the cyclical changes in the composition of government spending (government consumption, transfers and subsidies, and capital expenditure), as well as a possible link between cyclical ratcheting and government weakness.
UR - http://www.scopus.com/inward/record.url?scp=1842586441&partnerID=8YFLogxK
U2 - 10.1162/003465304323023868
DO - 10.1162/003465304323023868
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AN - SCOPUS:1842586441
SN - 0034-6535
VL - 86
SP - 353
EP - 361
JO - Review of Economics and Statistics
JF - Review of Economics and Statistics
IS - 1
ER -