In this working paper, we decompose fiscal policy in three components: i) responsiveness, ii) persistence
and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more
persistent than responding to output variations. We also found that while the effect of cross-country
covariates is positive (negative) for discretion, it is negative (positive) for persistence, suggesting that
countries with higher persistence have lower discretion and vice versa. In particular, while government
size, country size and income have negative effects on the discretion component of fiscal policy, they tend
to increase fiscal policy persistence.
