European Parliament Library

Automatic Stabilizers and the Size of Government :, Correcting a Common Misunderstanding, Carlo Cottarelli, Annalisa Fedelino

Abstract
The size of government is a commonly used variable in many analytical studies on the effects of fiscal policy. An accepted practice is to measure it as the ratio of government spending to GDP. However, this is not the correct metric when computing the stabilization effects of nondiscretionary fiscal policy. Intuitively, public spending does not react to cyclical conditions as much as taxes do - as reflected in the standard zero-one elasticity assumptions for spending and revenue, respectively. This paper shows that the revenue to GDP ratio is the appropriate indicator of government size for the purpose of assessing the stabilization effects of nondiscretionary fiscal policy
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Why is the Literature Focusing (Mostly) on the Spending Ratio?; III. Something is Counterintuitive; 1. Income Shocks and Fiscal Balances (No Spending, as a Share of GDP); 2. Income Shocks and Fiscal Balances (Nonzero Spending, as a Share of GDP); 3. Income Shocks and Fiscal Balances (No Spending, as a Share of Potential GDP); 4. Income Shocks and Fiscal Balances (Nonzero Spending, as a Share of Potential GDP); IV. A More Formal Treatment; V. Does it Matter in Practice?; 5. Measurement Error for Top 50 Economies, 2000-10
Language
eng
Literary Form
non fiction
Note
"July 2010"
Physical Description
1 online resource (26 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781462330515

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