Cyclicality of Fiscal Policy In Israel

30/04/2007 |  Strawczynski Michel, Zeira Joseph
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Fiscal Policy
Cyclicality of Fiscal Policy In Israel
Michel Strawczynski and Joseph Zeira
Abstract
This paper tests the cyclicality of fiscal policy in Israel. We find that government deficits are mildly counter-cyclical, mainly in recessions. Expenditures, and in particular, public investment, are pro-cyclical. However, we find that both the government deficit and expenditures have become more countercyclical after 1985, a period that is characterized by improved fiscal discipline, following the Israeli Stabilization. We interpret this result as an indication that Israel is nowadays in a transition from pro-cyclical fiscal policy, as in many developing countries, to countercyclical fiscal policy, as is more common in developed countries.
Keywords: Business Cycles, Fiscal Policy, Israel.
Correspondence: Michel Strawzcynski
Research Department
Bank of Israel.
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