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The Economic Impact of Fiscal Policy Uncertainty: Evidence from a New Cross-Country Database
Author:
Gee Hee Hong https://isni.org/isni/0000000404811396 International Monetary Fund

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Shikun (Barry) Ke
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Anh D. M. Nguyen https://isni.org/isni/0000000404811396 International Monetary Fund

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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 209
Language:
English
Publication Date:
27 Sep 2024
DOI:
https://doi.org/10.5089/9798400288128.001
ISBN:
9798400288128
ISSN:
1018-5941
Pages:
58
Keywords:
Fiscal policy uncertainty; news-based uncertainty; propagation of global shocks; VAR; novel database; uncertainty events; impact of Fiscal Policy Uncertainty; FPU index; uncertainty indicator; Industrial production; Debt default; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund