The smoothing impact of fiscal stabilizers (proxied by government expenditures) on business cycle volatility is studied for a panel of European Union (EU) countries in the period 1970-1999. Special emphasis is put on the investigation of possible nonlinearities in the relationship between Gross Domestic Product (GDP) growth volatility and fiscal stabilizers. The results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels. The results hold when using government revenues as a proxy for fiscal stabilizers.
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Document Type: Research Article
Department of Economics, University of Innsbruck, Universitatsstrasse 21, A 6020 Innsbruck, Austria
Oesterreichische Nationalbank, Foreign Research Division, Otto-Wagner-Platz 3, A-1011 Vienna, Austria
Publication date: 2011-04-01
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