Abstract
Fiscal Policy Cyclicality, Governance, and Quality of Institutions Nexus in Ireland
Highlights
Setting up vigorous targets in fiscal doctrines can be potentially countercyclical, and it is challenging to maintain an optimal output level at all times
The model's core variables are L.LogGCPt and LogGDPPt to capture the cyclicality of fiscal policy in Ireland
Countercyclical fiscal policy is corroborated in Ireland as contractionary fiscal policy
Summary
Setting up vigorous targets in fiscal doctrines can be potentially countercyclical, and it is challenging to maintain an optimal output level at all times. The cyclicality of fiscal strategies is affected by institutional activities under strict governance mechanisms. The advanced countries adopt a countercyclical fiscal policy mechanism in the presence of well-functioning institutions with good governance. The consequences of fiscal policy are usually closely related to institutional backgrounds. The impact that economic variables have on the fiscal strategy's performance and the role institutions play in an economy have widespread importance and consideration in evaluating growth policy. Political institutions' role is essential to European countries like many other economies as these economies are facing a fiscal deficit (Venes, 2010). It is argued that instability and lesser economic growth are caused by weak institutions (Acemoglu et al, 2003; Easterly, 2004)
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