Economic policy and output volatility in Spain, 1950-1998: was fiscal policy destabilizing?

Economic policy and output volatility in Spain, 1950-1998: was fiscal policy destabilizing?
Document type
Working Paper
Author(s)
Battilossi, Stefano; Escario, Regina; Foreman-Peck, James
Publisher
Cardiff Business School
Date of publication
1 July 2010
Series
Caediff Economics Working Papers
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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This paper estimates policy reaction functions and test the impact of fiscal shocks on growth volatility in Spain over the period 1950–1998. It finds that a transition from pro-cyclical to countercyclical fiscal policy occurred in the late years of the Franco regime, contributing to the stabilization of the growth pattern. The timing of the shift, between the late 1960s and early 1970s, was not determined by a single policy change, but rather by gradual pressure from economic liberalization, the external constraint imposed by a fixed exchange rate regime and the modernization of fiscal policy instruments. The aggressiveness of fiscal shocks also decreased over time, thus contributing to the progressive stabilization of output growth. There appears to be little necessity to appeal to a 'Great Moderation' of monetary policy to understand the greater stability of the Spanish economy from the 1980s.

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