Abstract
A volatile pattern of government spending and its financing triggers uncertainty about the timing and the costs of assets sale in financial markets, thereby leading to higher interest rates. This, in turn, hampers the extension of credit to businesses and individuals. The empirical results obtained for a wide group of developed and developing countries studied over the 1960--2009 period corroborate the existence of the negative link between fiscal volatility and financial development. (JEL codes: H20, G10) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.
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