A1663
Title: Automatic stabilizers from fiscal policy and the role of public and private consumption
Authors: Peter Pedroni - Williams College (United States) [presenting]
Fakhri Hasanov - KAPSARC (Saudi Arabia)
Abstract: A large panel of quarterly data observed over 52 countries from 1980 to 2023 is used to study the stabilization role of different forms of fiscal policy that operate via the dynamic interaction between public and private consumption. In particular, a heterogeneous panel VAR approach is employed, which allows the usage of standard structural identifying assumptions from the macro literature to disentangle exogenous discretionary fiscal policy shocks from the endogenous automatic budgetary responses of fiscal policy to economic shocks. In this context, measures are developed that allow the investigation via counterfactual historical decompositions of the extent to which exogenous versus endogenous fiscal policy has served to stabilize macroeconomic fluctuations in GDP and private consumption. Cross-country heterogeneity is also exploited in these measures to explore which economic structural attributes have been associated with greater or lesser stability outcomes for exogenous versus endogenous fiscal policy. It is found that in addition to the usual factors such as exchange rate regimes and degrees of openness, the presence of sovereign wealth funds and debt-based fiscal rules also play an important role.
