Fiscal Behaviour of municipality within Economic Cycle

The aim of this thesis is to identify fiscal behaviour of municipalities in the Czech Republic within economic cycle. The starting point of this thesis is that municipalities do not have the responsibility for macroeconomic stability, unlike the central level of government, and their preference is sustainability of its own budget. Absence of a motivation for implementing the countercyclical policy leads to a consideration that the behaviour of municipalities is rather procyclical. For the analysis there were used datas of 325 municipalities during the time from 2001 to 2014. The research was designed to test the dependence of the budgetary indicator on the output gap. As a method of exploration there was used the panel regression analysis with random effects estimate for help with robust standard errors in the version of White cross-section method. The results confirmed a statistically significant effect of the output gap on the budgetary indicators, tax revenues, tax on personal income from self-employment and capital expenditures. With the growth of the output gap also tax revenues and revenues from taxes on a personal income from self-employment are growing. With the growth of the output gap capital expenditures are declining. These budgetary indicators are developed countercyclical. A statistically significant effect of the output gap on the other budgetary indicators failed to prove. The main hypothesis of this thesis is not rejected. Budgetary behaviour municipalities in the Czech Republic is influenced by the economic cycle. Fiscal behaviour of municipalities in the Czech Republic within economic cycle is countercyclical.