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Type: Journal Articles Authors: Sara Maria Riscado, Juraj Stancík and Timo Välilä ISSN: Print 0143-5671 Online:1475-5890
Published in: Fiscal Studies, Vol. 32, No. 4, December 2011
Volume, issue, pages: Vol. 32, No. 4, pp. 511-538
JEL classification: H29, H50, E62, E32, C33 Keywords: tax volatility, public investment, public consumption
Earlier empirical literature has examined some long- and medium-term aspects of macro-fiscal volatility while leaving its short-term fiscal impact unexplored. To help fill that gap, we examine the impact of macro-fiscal volatility on the composition of public spending. To that end, we analyse a panel of 10 EU countries during 1991-2007. Our results suggest that increases in the volatility of regularly-collected and cyclical revenues such as the VAT and income taxes tend to tilt the expenditure composition in favour of public investment. In contrast, increases in the volatility of ad hoc taxes such as capital taxes tend to favour public consumption spending, albeit only a little. We interpret such volatility innovations as conveying news to the fiscal policymaker about the underlying economic conditions, with especially regularly-collected and cyclical taxes prompting short-term cyclical fine-tuning. Search |
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