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Procyclical Fiscal Policy (Paperback, 1st ed. 2018)
Loot Price: R1,684
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Procyclical Fiscal Policy (Paperback, 1st ed. 2018)
Series: Development Bank of Japan Research Series
Expected to ship within 10 - 15 working days
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Conventional wisdom dictates that a fiscal policy should be
counter-cyclical. However, contrary to this conventional views,
recent research has demonstrated that fiscal policy is actually
procyclical in most developing countries. In this book, we attempt
to propose a new interpretation of this procyclicality after
reviewing theoretical and empirical evolution of the research. In
particular, by incorporating the political effort behavior of
private agents into a weak government model, we explore how income
fluctuations affect the optimal budget deficits in a political
economy. If the government can control the political behavior,
normally, the optimal budget deficit should rise in a recession as
a first-best case; however, interestingly, a recession does not
necessarily prompt an increase in the budget deficits in a
second-best political economy. The response of the budget deficits
to income fluctuations mainly depends on the efficiency of
political effort, which may correspond to the degree of democracy
and bureaucratic efficiency of the governments. We test the
prediction of the pro-cyclical fiscal policy and find it applicable
for democratic countries with semi-efficient governments including
Japan.
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