CYCLICALITY AND FISCAL POLICY IN THE CARIBBEAN
Using alternative measures of the output gap, this paper shows that the increase in public debt in selectedCaribbean countries is partially related to the ratchet effect of asymmetric fiscal deficits over successive businesscycles. Three different estimates of the output gap for ten Caribbean countries are used to calculate structuralbalances for these economies. Fiscal policy in the Caribbean appears to be generally pro-cyclical, due in part, tothe pro-cyclicality of revenue. Consequently, estimates of automatic fiscal stabilizers appear to be extremely low,limiting their use for countercyclical policy. This observation provides further support for enhanced fiscal effort tocreate room for countercyclical policy and to deal with the effects of inevitable natural disasters.
Journal of Business, Finance and Economics in Emerging Economies