ADB; Aizenman, Joshua; Jinjarak, Yothin; Nguyen, Hien Thi Kim; Park, Donghyun2021-10-052021-10-052019-05N/AN/A2313-65372313-6545https://www.adb.org/publications/fiscal-space-fiscal-resiliencehttps://hdl.handle.net/20.500.14540/5630This paper compares fiscal cyclicality across advanced and developing economies in terms of geography and income levels between 1960 and 2016. It identifies factors that explain government spending and tax-policy cyclicality. On average, a more indebted government spends more in good times and cuts back spending indifferently compared with low-debt economies in bad times. The sovereign wealth funds of economies have a countercyclical effect in our estimation. The analysis depicts a significant economic impact of an interest rate rise on fiscal space: a 10% increase in the public debt–tax base ratio is associated with an upper bound of a 5.6% increase in government-spending procyclicality.40EconomicsPublic expenditurePublic financial managementPublic revenuePublic sector governance