Fiscal Consolidation Across Government Levels - Part 3. Intergovernmental Grants, Pro- or Counter-cyclical?

This paper provides empirical analysis that measures the cyclical properties of intergovernmental transfers (or grants). Modelling a fiscal policy reaction function this paper tests whether the transfers systems in OECD countries are pro- or counter-cyclical, i.e. whether they offset cyclical fluctu...

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Main Author: Blöchliger, Hansjörg
Other Authors: Égert, Balázs
Format: eBook
Language:English
Published: Paris OECD Publishing 2013
Series:OECD Economics Department Working Papers
Subjects:
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Collection: OECD Books and Papers - Collection details see MPG.ReNa
Summary:This paper provides empirical analysis that measures the cyclical properties of intergovernmental transfers (or grants). Modelling a fiscal policy reaction function this paper tests whether the transfers systems in OECD countries are pro- or counter-cyclical, i.e. whether they offset cyclical fluctuations of sub-central economies or, on the contrary, exacerbate them. Regression results suggest that transfer systems tend to be pro-cyclical in general and in more than half of OECD countries they tend to destabilise sub-central budgets. Transfer pro-cyclicality may be the result of several factors: Transfer spending is often determined as a share of central government tax revenue, which itself tends to fluctuate with the cycle. Moreover, many grants are matching sub-central spending and hence tend to exacerbate fluctuations of that sub-central spending. Pro-cyclical grants could partly explain the often observed pro-cyclicality of subcentral government fiscal policy
Physical Description:15 p. 21 x 29.7cm