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A large and growing literature has argued that industrialized and developing countries behave very differently in relation to their fiscal policy stances over the business cycle. In this paper, the authors provide new evidence on the cyclicality of fiscal policy across industrialized and developing countries. The authors sample includes 180 countries, of which 134 are developing countries and 46 are high income countries over the period 1980-2012. The authors follow the methodology of Frankel and others (2013) but at the same time introduce three innovations to the empirical approach. This paper is organized as follows : After Introduction, Section two discusses issues associated with the choice of filter to smooth the proxy variable for fiscal cyclicality while Section three estimates our own Graduating Class under different filtering methods and a country-specific approach to split the sample into two sub-periods. Section four presents an analysis of how the countries in our sample behave over the business cycle. Section five discusses our findings on the empirical determinants of fiscal cyclicality while Section six explores endogeneity issues. Section 7 presents concluding remarks confirming earlier findings in the literature on the causal link between institutional quality and a less pro-cyclical fiscal stance and suggesting policy directions that could be useful to countries interested in strengthening their fiscal positions and becoming better equipped to adopt counter-cyclical fiscal policies

Business Cycles and Stabilization Policies --- Fiscal & Monetary Policy --- Fiscal Policy --- Macroeconomics and Economic Growth

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Robert B. Zoellick, President of the World Bank, recalled a moment in John Maynard Keynes life when he called for deeds that restore the public trust that governments are up to the challenge of the current crisis. What started in 2007 as a financial crisis quickly spiraled into an economic crisis, with estimates for 2009 for the first contraction of the global economy since World War II and the largest decline of trade in 80 years. Developing countries are being battered in successive waves as private capital flows slump sharply. These events could next become a social and human crisis, with political implications. Zoellick reviewed the difficulties for each region of the world. Unlike the 1930s, however, central banks have stepped in with creative solutions to keep credit flowing. But the challenge ahead requires a spirit of innovation backed by action. The World Bank Group's Board is considering a new proposal: the launch of a USD 50 billion Global Trade Liquidity Program. Zoellick called for the member of the G-20 to make multilateralism work and to empower the WTO, the IMF, and the World Bank Group to monitor national policies. Bringing sunlight to national decision-making would contribute to transparency, accountability, and consistency across national policies. It is time to institutionalize "early warning" systems to protect the poor from cuts in social programs during times of economic crisis. Modern multilateralism will require that rising economic powers have a larger say in how institutions such as the World Bank and the IMF are run.

Business Cycles and Stabilization Policies --- Capital Flows --- Economic Growth --- Governance --- International Governmental Organizations --- Macroeconomics and Economic Growth

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As governments around the world struggle to piece together the most effective fiscal response to counter the economic and social impact of the COVID-19 outbreak, some are facing constraints imposed by fiscal rules enacted in the past to ensure fiscal discipline. The outbreak has revealedthe weaknesses and inappropriateness of many existing fiscal rules, and authorities should take the opportunity to strengthen their fiscal rules by adopting features that make them more flexible, operational, and enforceable. Research shows that the de facto strength and credibility of the fiscal rule is what matters for fiscal discipline, not the mere de jure existence of one. As important as it is that fiscal rules include contingencies to accommodate large and effective fiscal responses to severe and unprecedented crises, it is also as important that fiscal rules provide clear guidance for building up savings in times of positive shocks.

Business Cycles and Stabilization Policies --- Coronavirus --- COVID-19 --- Fiscal and Monetary Policy --- Fiscal Policy --- Macroeconomic Management --- Macroeconomics and Economic Growth

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The scale and scope of Lebanon's deliberate depression are leading to the disintegration of key pillars of Lebanon's post-civil war political economy. Monetary and financial turmoil along with surging inflation continue to drive crisis conditions. Public finances improved in 2021 as spending collapsed faster than revenue. Lebanon urgently needs to adopt and implement a credible, comprehensive, equitable reform plan if it is to avoid a complete destruction of its social and economic networks and immediately stop irreversible loss of human capital.

Business Cycles and Stabilization Policies --- Economic Growth --- Fiscal and Monetary Policy --- Inflation --- Macroeconomics and Economic Growth --- Monetary Policy

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COVID-19 not only represents a worldwide public health emergency but has become an international economic crisis that could surpass the global financial crisis of 2008-09. Right now, containment and mitigation measures are necessary to limit the spread of the virus and save lives. However, they come at a cost, as shutdowns imply reducing economic activity. These human and economic costs are likely to be larger for developing countries, which generally have lower health care capacity, larger informal sectors, shallower financial markets, less fiscal space, and poorer governance. Policy makers will need to weigh carefully the effectiveness and socioeconomic consequences of containment and mitigation policies, responding to epidemiological evidence on how the virus spreads and trying to avoid unintended consequences. Economic policy in the short term should be focused on providing emergency relief to vulnerable populations and affected businesses. The short-term goal is not to stimulate the economy-which is impossible, given the supply-restricting containment measures, but rather to avoid mass layoffs and bankruptcies. In the medium term, macroeconomic policy should turn to recovery measures, which typically involve monetary and fiscal stimulus. However, in many developing countries, stimulus may be less effective because monetary transmission is weak and fiscal space and fiscal multipliers are often small. A more viable goal for macroeconomic policy in developing countries is avoiding procyclicality, ensuring the continuity of public services for the economy, and supporting the vulnerable. Because COVID-19 is truly a global shock, international coordination is essential, in economic policy,health care and science, and containment and mitigation efforts. Critical times call for well-designed government action and effective public service delivery-preserving, rather than ignoring, the practices for macroeconomic stability and proper governance that serve in good and bad times.

Business Cycles and Stabilization Policies --- Economic Conditions and Volatility --- Fiscal and Monetary Policy --- Macroeconomic Management --- Macroeconomics and Economic Growth