Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 08 August 2019

The Effect of Tunisian Cyclical Fiscal Policy on Economic Volatility: Understanding the Role of Institutional Quality

Bahrini Wadiaa

University of Manouba

Download Full-Text Pdf


Pages: 704-713

Keywords: Instabilities, Institutional Reforms, Fiscal policy, Volatility, Tunisian Economy, Cyclical Component, Fiscal Indicators


The recent decades have been marked by major instabilities that have increased the sensitivity of Tunisian business cycles to internal and external shocks. The economists must take this structural problem into account in their current decisions. Therefore, most institutional reforms were made in response to those instabilities after the Tunisian revolution. In addition, several fiscal indicators are partly intended to stabilize Tunisian economic fluctuations and avoid excessive government deficits. The influence of fiscal policy can be examined by distinguishing between cyclical and discretionary policies. Accordingly, it is interesting to investigate the impact of institutional quality on Tunisian fiscal policy conduct. This paper measures the effect of cyclical fiscal policy on Tunisian volatility. It analyzes the role of four fiscal indicators such as total government expenditure, administrative expenditure, capital expenditure, and loan expenditure. In addition, this paper tests the role of institutional variables on the stabilizing effect of fiscal policy. Indeed, the results are significant, and a tendency to apply a cyclical fiscal policy proved to be possible to reduce Tunisian volatility. Tunisian's experience is likely to be of interest to other developing countries.


  1. Acemoglu, D., Johnson, S., Robinson, J., and Thaicharoen, Y. (2003). Institutional causes, macroeconomic

  2. symptoms: volatility, crises, and growth. Journal of Monetary Economics, 50(1):49–123.

  3. Alesina, A., and Bayoumi, T. (1996). The costs and benefits of fiscal rules: Evidence from u.s. states. NBER

  4. Working Papers 5614, National Bureau of Economic Research, Inc.

  5. Alisdair.Mckay and Ricardo.Reis (2016). The role of automatic stabilizers in the us business cycle. Econometrica, 84(1):141194.

  6. Auerbach, A. J. (2009). Implementing the new fiscal policy activism. American Economic Review, 99(2).

  7. Badinger, H. (2008). Cyclical fiscal policy, output volatility, and economic growth. SSRN eLibrary.

  8. Badinger, H. (2012). Cyclical expenditure policy, output volatility and economic growth. Applied Economics, 44(7):835–851.

  9. Blanchard, O. and Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. forthcoming, Quarterly Journal of Economics.

  10. Easterly, W. (2005). National policies and economic growth: A reappraisal. In Aghion, P. and Durlauf, S., editors, Handbook of Economic Growth, volume 1 of Handbook of Economic Growth, chapter 15, pages 1015–1059. Elsevier.

  11. Egert, B. (2014). Fiscal policy reaction to the cycle in the oecd: pro- or counter-cyclical? Mondes en dloppement, 3(167):35–52.

  12. Fatas, A. and Mihov, I. (2003). The case for restricting fiscal policy discretion. The Quarterly Journal of Economics, 118(4):1419–1447.

  13. Fatas, A. and Mihov, I. (2005). Policy volatility, institutions and economic growth. CEPR Discussion Papers 5388, C.E.P.R. Discussion Papers.

  14. Fatas, A. and Mihov, I. (2012). Fiscal policy as a stabilization tool. The B.E. Journal of Macroeconomics, De Gruyter, 12(3):1–68.

  15. Henisz, W. (2017). Polcon codebook. http:

  16. Ilzetzki, E. and Vegh, C. A. (2008). Procyclical fiscal policy in developing countries: Truth or fiction? Working Paper 14191, National Bureau of Economic Research.

  17. Keefer, P. (2017). Database of political institutions 2017. World Bank.

  18. Kondo, A. and Svec, J. (2009). Fiscal policy cyclicality and growth within the u.s. states. Working Papers 0911, College of the Holy Cross, Department of Economics.

  19. Lee, Y. and Sung, T. (2007). Fiscal policy, business cycles and economic stabilisation: Evidence from industrialised and developing countries. Fiscal studies, 28:437–462.

  20. Leigh, D. and Stehn, S. J. (2009). Fiscal and monetary policy during downturns: Evidence from the g7. International Monetary Fund WP/09/50IMF Working Paper.

  21. Persson, T. and Tabellini, G. (2001). Political institutions and policy outcomes: What are the stylized facts? CEPR Discussion Papers 2872, C.E.P.R. Discussion Papers.

  22. Poterba, J. (1994). State responses to fiscal crises: The effects of budgetary institutions. Journal of Political Economy, 102.

  23. Talvi, E. and Vegh, C. (2005). Tax base variability and procyclical fiscal policy in developing countries. Journal of Development Economics, 78(1):156–190.

  24. Von Hagen, J. and Harden, I. (1995). Budget processes and commitment to fiscal discipline. European Economic Review, 39:771–79.

  25. Zaric, S. (2018). Cyclic characteristics of macroeconomic variables in serbia. Industrija, Vol.46(No.1).

About Us

The Asian Institute of Research is an online and open-access platform to publish recent research and articles of scholars worldwide. Founded in 2018 and based in Indonesia, the Institute serves as a platform for academics, educators, scholars, and students from Asia and around the world, to connect with one another. The Institute disseminates research that is proven or predicted to be of significant influence for the general public.

Stay Connected

  • Instagram - Black Circle
  • Facebook - Black Circle
  • LinkedIn - Black Circle

Contact Us

Please send all inquiries to the email:

Business Address:

5th Floor, Kavling 507, Fajar Graha Pena Tower, Jl. Urip Sumohardjo No.20, Makassar, Indonesia 90234

Copyright © 2018 The Asian Institute of Research. All rights reserved