Huidrom, RajuKose, M. AyhanOhnsorge, Franziska L.2016-07-072016-07-072016-06https://hdl.handle.net/10986/24642This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008-09, which was then used for stimulus. This reflects a more general trend over the past three decades, where availability of fiscal space has been associated with increasingly countercyclical (or less procyclical) fiscal policy. However, fiscal space has shrunk since the Great Recession and has not returned to pre-crisis levels. Emerging and developing economies face downside risks to growth and prospects of rising financing costs. In the event that these cause a sharp cyclical slowdown, policy makers may need to employ fiscal policy as a possible tool for stimulus. An important prerequisite for fiscal policy to be effective is that these economies have the necessary fiscal space to employ countercyclical policies. Over the medium-term, credible and well-designed institutional arrangements, such as fiscal rules, stabilization funds, and medium-term expenditure frameworks, can help build fiscal space and strengthen policy outcomes.en-USCC BY 3.0 IGOCURRENCY MISMATCHESMONETARY POLICYDEFICITWITHDRAWALDEBT ACCUMULATIONCAPITAL MARKETSCONSUMPTION EXPENDITURESHOLDINGOIL PRICELONG-TERM INTERESTSTOCKMACROECONOMIC MANAGEMENTINTERESTGUARANTEESGOVERNMENT SPENDINGEMERGING ECONOMIESINTEREST RATEPRIVATE CREDITOPTIONEXCHANGEGOVERNMENT REVENUESDEBT MANAGEMENTLIQUIDITYDEVELOPING COUNTRIESREAL INTERESTPOLITICAL ECONOMYEXPORTERSREVENUESPORTFOLIOFISCAL POLICYLIQUIDITY RISKBONDSMACROECONOMIC CONDITIONSTAXGOVERNMENT BONDRESERVEMARKET ACCESSGOVERNMENT GUARANTEESINTERNATIONAL BANKPENSIONDEBT BURDENCREDIBILITYFINANCIAL FRAGILITYBUDGETMARKET PARTICIPANTSCENTRAL BANKMATURITYPOLICY RESPONSEFISCAL POLICIESINSTITUTIONAL INVESTOROIL PRICESINITIAL DEBTGLOBAL ECONOMYCURRENCYINTEREST EXPENSEDOMESTIC CURRENCYEXCHANGE RATE MOVEMENTSPOLICY RESPONSESFOREIGN CURRENCY DEBTRESERVE BANKBOND YIELDGOVERNMENT BOND YIELDPRICE VOLATILITYCAPITAL FORMATIONEXCHANGE RATESOPTIONSINTEREST RATESMONETARY FUNDGLOBALIZATIONPRIVATE SECTOR DEBTMARKETSDEBTFINANCIAL CRISESLOCAL GOVERNMENTRETURNOPEN ECONOMYBUSINESS CYCLEPUBLIC DEBT MANAGEMENTINTERNATIONAL ECONOMICSREAL INTEREST RATERESERVESNEGATIVE SHOCKSGROSS DOMESTIC PRODUCTPENSION FUNDSCOMMODITY PRICEFINANCEFOREIGN CURRENCYTAXESEXPENDITUREDEBT LEVELSEMERGING MARKETSINCOME TAXESINVESTORSSOVEREIGN DEBTDEBT RATIOFEDERAL RESERVEGOODCENTRAL GOVERNMENT DEBTFEDERAL RESERVE BANKINTERNATIONAL FINANCIAL STATISTICSTRANSPARENCYLONG-TERM INTEREST RATEPRIVATE SECTOR CREDITMARKET CONDITIONSACCESS TO CAPITALFINANCIAL CRISISFUTUREDEBT CRISESSHORT-TERM DEBTBUDGETSLONG-TERM INTEREST RATESGOVERNMENT EXPENDITUREEXPENDITURESPORTFOLIO ALLOCATIONTAX RATESSHARESBALANCE SHEETDEBT STOCKSMARKETDEBT RATIOSPUBLIC DEBTTREASURYSOLVENCYMACROECONOMIC VARIABLESBUSINESS CYCLESCURRENCIESGOVERNMENT DEBTGOODSINVESTORSTOCKSOUTSTANDING DEBTBONDDOMESTIC CREDITSOVEREIGN BONDSSHAREBALANCE SHEETSPOVERTYFINANCIAL MARKETSTREASURY YIELDSREVENUEEXTERNAL DEBTLENDINGCREDIT GROWTHPENSION FUNDEXCHANGE RATEINSTRUMENTBANKING CRISESWITHDRAWAL OF FUNDCOMMODITY PRICESLIABILITIESINTERNATIONAL MARKETSINTERNATIONAL SETTLEMENTSGUARANTEEDEBT RELIEFWorking PaperWorld Bank10.1596/1813-9450-7725