Government spending and tax policies in developing countries tend to increase during economic booms and decrease during downturns. This happens because of financial obstacles in these markets, like incomplete asset markets and varying interest rates on debt. These factors lead to more spending during good times but not necessarily higher taxes. The relationship between private and public spending also affects tax policies. A more detailed model confirms that tax policies in emerging markets are indeed influenced by the business cycle. Additionally, when financial obstacles are more severe, the impact of fiscal policies on the economy becomes more significant, resulting in higher welfare costs.