Recent financial crisis has intensified discussions of scientists and politicians concerning the application of fiscal policy to stabilize the business cycle, i.e. what fiscal policy and when it can be applied, what leads to effectiveness of fiscal policy tools in different countries. Economic stabilization processes are simpler in well-developed countries, where governments apply countercyclical fiscal policies, while in less developed countries, fiscal policies are less effective. The scientists agree that government spending is countercyclical or acyclical in developed countries. However, in less developed countries, unlike developed countries, government spending is pro-cyclical. However, author‘s interpretations of the constraints underpinning the pro-cyclical fiscal policy is not unambiguous. So the aim of the research is to analyze restrictions that reduce the effectiveness of fiscal policy in the context of cyclical fluctuations. Object of the research – restrictions reducing effectiveness of fiscal policy. Methods of the research: systematic analysis of scientific literature, logical comparative analysis and generalization methods. The main conclusions: Although the theory maintains, that the countercyclical fiscal policy should be applied to stabilize economic cycle, but in less developed countries dominate pro-cyclical fiscal policy, which is determined by 1) political restrictions (presidential / parliamentary system, legal and political infrastructure weakness / strength, fiscal instability, weak laws implementation (corruption), government instability and the dispersion of power), 2) social polarization of preferences, 3) financial market restrictions (borrowing constraints (financial openness and depth of local markets), market imperfections (also lack of diversity of financial instruments), financial integration level)
