Description

Fiscal policy regimes are increasingly adopted by governments that aim at contributing to stabilize business cycles and make public finances more resilient to political pressure. This paper presents a comprehensive empirical exploration of the possible explanations of why countries choose fiscal policy regimes. The paper puts together and uses a large world panel dataset for treatment and control country groups, applies five panel-data estimation techniques for discrete-choice dependent variables, and conducts robustness checks for different control groups and time periods. The paper’s evidence shows that the likelihood of having a fiscal regime in place increases significantly and robustly with the government balance, government stability, and GDP per-capita, and declines with dependency ratio and expenditure procyclicality.