A Modern History of Fiscal Prudence and Profligacy

54 Pages Posted: 28 Feb 2013

See all articles by Paolo Mauro

Paolo Mauro

International Monetary Fund (IMF)

Rafael Romeu

International Monetary Fund (IMF)

Ariel Binder

U.S. Census Bureau

Asad Zaman

International Monetary Fund (IMF)

Date Written: January 2013

Abstract

We draw on a newly collected historical dataset of fiscal variables for a large panel of countries — to our knowledge, the most comprehensive database currently available — to gauge the degree of fiscal prudence or profligacy for each country over the past several decades. Specifically, our dataset consists of fiscal revenues, primary expenditures, the interest bill (and thus both the primary and the overall fiscal deficit), the government debt, and gross domestic product, for 55 countries for up to two hundred years. For the first time, a large cross country historical data set covers both fiscal stocks and flows. Using Bohn’s (1998) approach and other tests for fiscal sustainability, we document how the degree of prudence or profligacy varies significantly over time within individual countries. We find that such variation is driven in part by unexpected changes in potential economic growth and sovereign borrowing costs.

Keywords: Cross country analysis, Fiscal policy, Fiscal sustainability, budget constraint, budget deficits, central government expenditure, debt sustainability, economic growth, expansionary fiscal, expansionary fiscal policies, expenditure ratios, fiscal adjustment, fiscal affairs, fiscal affairs department, fiscal aggregates, fiscal balance, fiscal balances, fiscal behavior, fiscal consolidation, fiscal consolidation efforts, fiscal consolidations, fiscal crisis, fiscal data, fiscal deficit, fiscal discipline, fiscal policies, fiscal policy, fiscal policy decisions, fiscal policy response, fiscal policy responses, fiscal position, fiscal profligacy, fiscal prudence, fiscal reaction, fiscal reaction

JEL Classification: H62, H63

Suggested Citation

Mauro, Paolo and Romeu, Rafael and Binder, Ariel and Zaman, Asad, A Modern History of Fiscal Prudence and Profligacy (January 2013). IMF Working Paper No. 13/5, Available at SSRN: https://ssrn.com/abstract=2226278

Paolo Mauro (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Rafael Romeu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ariel Binder

U.S. Census Bureau ( email )

4600 Silver Hill Road
Washington, DC 20233
United States

Asad Zaman

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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