TY  - JOUR
AU  - Frankel,Jeffrey A.
AU  - Végh,Carlos A.
AU  - Vuletin,Guillermo
TI  - On Graduation from Fiscal Procyclicality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17619
PY  - 2011
Y2  - November 2011
UR  - http://www.nber.org/papers/w17619
L1  - http://www.nber.org/papers/w17619.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu

Carlos A. Vegh
Department of Economics
Tydings Hall, Office 4118G
University of Maryland
College Park, MD 20742-7211
Tel: 301-405-3546
Fax: 301-405-3542
E-Mail: vegh@econ.bsos.umd.edu

Guillermo Vuletin
Colby College
Department of Economics
Diamond, 3rd floor
5230 Mayflower Hill
Waterville, ME 04901-8852
Tel: 207-859-5235 
Fax: 207-859-5248
E-Mail: gvuletin@colby.edu
AB  - In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. We then focus on the role played by the quality of institutions, which appears to be a key determinant of a country’s ability to graduate. We show that, even after controlling for the endogeneity of institutions and other determinants of …scal procyclicality, there is a causal link running from stronger institutions to less procyclical or more countercyclical fiscal policy.
ER  -