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Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Redistributive Fiscal Policies and Business Cycles in Emerging Economies
Amanda M. Michaud
Jacek Rothert
Abstract

Government expenditures are pro-cyclical in emerging markets and counter-cyclical in developed economies. We show this pattern is driven by differences in social transfers. Transfers are more counter-cyclical and comprise a larger portion of spending in developed economies compared to emerging. In contrast, government expenditures on goods and services are quite similar across the two. In a small open economy model, we find disparate social transfer policies can account for more than a half of the excess volatility of consumption relative to output in emerging economies. We analyze how differences in tax policy and the nature of underlying inequality amplify or mitigate this result.


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Amanda M. Michaud & Jacek Rothert, Redistributive Fiscal Policies and Business Cycles in Emerging Economies, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1709, 24 May 2017.
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Keywords: Fiscal Policy; Open Economy Macroeconomics; Emerging Markets; Business Cycles
DOI: 10.26509/frbc-wp-201709
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