Journal of Monetary Economics2013-09-05 2:57 AM

Vertical fiscal imbalances and fiscal performance in advanced economies

Highlights • We present stylized facts on vertical fiscal imbalances (VFI) in OECD countries. • There is a negative empirical relationship between VFI and fiscal performance. • This negative effect is stronger when horizontal fiscal imbalances are large. • Reducing the VFI can potentially generate significant fiscal gains. Abstract The paper examines empirically, using a measure of “vertical fiscal imbalances” (VFI), the relationship between overall fiscal performance and the financing structure of subnational governments. It presents stylized facts regarding the size, evolution, and components of measured VFI using data from 28 OECD countries. On average, the general government fiscal balance is found to improve by 1 percent of GDP for each 10 percentage point reduction in VFI.

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Journal of Monetary Economics

The Journal of Monetary Economics is a peer-reviewed academic journal covering research on macroeconomics and monetary economics. It is published by Elsevier and was established in October 1973 by Karl Brunner and Charles I. Plosser.

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