Foto: F64
Sort of an addition to my previous post. Fiscal policy in Latvia is indeed procyclical i.e. it follows the economic cycle, right now with austerity at a time of recession/feeble growth.
Many (no links; too many to count) have raged against this without understanding that today's procyclical fiscal policy is the result of procyclical fiscal policy during the ‘fat years' (i.e. where fiscal policy consisted of splashing out in the good times, helping to exacerbate the boom).
Alas, the title: Today's fiscal policy is an anti-Keynesian policy necessitated by anti-Keynesian mistakes in the past.
At first, in Figure 1, a reminder of the degree of procyclicality. I call it budget seasonality: As the very high growth rates of 2004-07 created avalanches of tax revenue, political fingers were itching with irresistible temptation to spend these windfalls - witness how fourth quarter spending massively exceeds spending earlier in the year. Spend, spend, spend! was the simple fiscal motto.
