Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Working Paper

Redistributive Fiscal Policies and Business Cycles in Emerging Economies

Government expenditures are procyclical in emerging markets and counter-cyclical in developed economies. We show this pattern is driven by differences in social transfers. Transfers are more countercyclical 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.

Suggested Citation

Michaud, Amanda, and Jacek Rothert. 2017. “Redistributive Fiscal Policies and Business Cycles in Emerging Economies.” Federal Reserve Bank of Cleveland, Working Paper No. 17-09.