The Economic Impact of Fiscal Policy Uncertainty: Evidence from a New Cross-Country Database

Download or read book The Economic Impact of Fiscal Policy Uncertainty: Evidence from a New Cross-Country Database written by Mr. Gee Hee Hong and published by International Monetary Fund. This book was released on 2024-09-27 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fiscal policy uncertainty (FPU)—ambiguity in government spending and tax plans, as well as in public debt valuation—is widely regarded as a source of economic and financial disruptions. However, assessing its impact has so far been limited to a few large economies. In this paper, we construct a novel database of news-based fiscal policy uncertainty for 189 countries. Importantly, we track fiscal uncertainty events that generate global attention that we refer to as the “global fiscal policy uncertainty." This uncertainty has contractionary effects, reducing industrial production in both advanced and emerging market economies, with impacts greater than country-specific fiscal policy uncertainty. Additionally, global fiscal policy uncertainty raises sovereign borrowing costs and generates synchronous movements in the global financial variables, even after accounting for US monetary policy shocks.