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Turning a Blind Eye to Policy Prescriptions: Exploring the Sources of Procyclical Fiscal Behavior at the Subnational Level

PFM, Vol. 18 No. 3, (2018)

This paper analyses the fiscal behavior of subnational districts in Argentina over the business cycle. I address two questions. Is the fiscal policy of Argentine districts pro-cyclical? If so, what is the theory that best explains procyclicality? The answers come from the estimation of an error correction model of a panel that spans 23 years and 24 districts. I found that all categories of public expenditures, except for capital ex-penditures, were procyclical. The main sources of procyclicality are the political net-works, changes in the amount of oil, gas and mining grants, federal interventions, and discretionary intergovernmental transfers.

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