Social capital and the cyclicality of government expenditure
by Roman Dennis Bausch
International Journal of Trade and Global Markets (IJTGM), Vol. 12, No. 3/4, 2019

Abstract: Fiscal policy in developing countries follows predominantly the business cycle. By aggravating economic contractions, procyclicality has adverse effects on the prospects for countries and their international trading partners. Recent work identified as a leading cause for procyclicality institutional shortcomings. This paper sets out to examine whether fiscal cyclicality is determined by social capital, which in many ways shapes and constrains the institutional environment. The study confirms a causal and robust negative relationship between social capital and procyclicality, whereby the results indicate that this relationship partially runs through the adoption of fiscal rules and the extent of corruption.

Online publication date: Mon, 12-Aug-2019

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