OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Fiscal Convergence, Business Cycle Volatility and Growth
This paper analyzes the effects of fiscal convergence on business cycle volatility and growth. Using a panel
21 OECD countries (including 11 EMU countries) and 40 years of data, we find that countries with similar
government budget positions tend to have smoother business cycles. That is, fiscal convergence (in the
form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with
smoother business cycles. We also find evidence that reduced business cycle volatility through higher
fiscal convergence stimulates growth. Our empirical results are economically and statistically significant and robust.
Keywords: business cycle volatility, economic growth, fiscal convergence
JEL:
G20: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: General;
R21: Urban, Rural, Regional, Real Estate, and Transportation Economics / Household Analysis / Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand;
G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation;
E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy;
G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages
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