SpringerBriefs in Economics Procyclical Fiscal Policy - Toshihiro Ihori Keigo Kameda Kartoniert (TB)

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.