The social impact of fiscal policy responses to crises

Carlos A. Vegh , Guillermo Vuletin 12 June 2014

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Fiscal policy in many developing countries is typically procyclical. Expansionary in good times and contractionary in bad times, these policies often amplify business cycles. The most convincing explanations for such practices seem to be limited access to international credit markets during bad times and political pressures that tend to encourage too much public spending during boom periods (Calderon and Schmidt-Hebbel 2008). Whatever the reason, the pattern is well documented (see Frankel, Vegh, and Vuletin 2011 on the spending side and Vegh and Vuletin 2013a on the tax side).

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Topics:  Macroeconomic policy

Tags:  fiscal policy, business cycle, austerity, cyclicality, LAC-7

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