Cyclicality of fiscal policy and the shadow economy |
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Authors: | Deniz Çiçek Ceyhun Elgin |
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Institution: | (1) Department of Law, University of Urbino, Via Matteotti 1, 61029 Urbino, Italy |
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Abstract: | A survey of recent literature on cyclical properties of fiscal policy reveals that fiscal policy is procyclical in many developing
countries whereas it is countercyclical in developed ones. However, there is no consensus on what drives the difference in
this specific cyclical property of fiscal policy. Using cross-section and panel data sets for 78 countries we document that
procyclicality of fiscal policy is more pronounced in countries with a larger size of the shadow economy. We also show that
policies reducing the size of the shadow economy lead to a less (more) procyclical (countercyclical) fiscal response to shocks. |
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Keywords: | |
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