Non-technical summary 1 Introduction 2 Literature review 3 Stylised facts and data description 4 The empirical model and results 4.1 The basic model 4.2 The credit risk transfer hypothesis 4.3 Predictive power and relative contribution of factors 4.4 Robustness checks 5 Conclusions and areas for future research References Appendices European Central Bank Working Paper Series CONTENTS 4 ECB Working Paper Series No 1131

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper studies the effects of fiscal consolidation on the debt-to-GDP ratio of 11 Euro area countries. Using a quarterly fiscal Panel VAR allows us to trace out the dynamics of the debt-to-GDP ratio following a fiscal shock and to disentangle the main channels through which fiscal consolidation affects the debt ratio. We define a fiscal consolidation episode as self-defeating if the debt-to-GDP ratio does not decrease compared to the pre-shock level. Our main finding is that when consolidation is implemented via a cut in government primary spending, the debt ratio, after an initial increase, falls to below its pre-shock level. When instead the consolidation is implemented via an increase in government revenues, the initial increase in the debt ratio is stronger and, eventually, the debt ratio reverts to its pre-shock level, resulting in what we call self-defeating austerity. Non-technical summarySince the start of the sovereign debt crisis, in early 2010, many Euro area countries have adopted fiscal consolidation measures in an attempt to reduce fiscal imbalances and preserve their sovereign creditworthiness. Nonetheless, in most cases, fiscal consolidation did not result, at least in the short run, in a reduction in the debt-to-GDP ratio whereas economic growth turned out weaker than expected. Against this background, calls for a more temperate approach to fiscal consolidation have increased on the ground that the drag of fiscal restraint on economic growth could lead to an increase rather than a decrease in the debt-to-GDP ratio, as such fiscal consolidation may turn out to be self-defeating. In particular, the fall in the GDP growth rate which follows a consolidation episode, would lead to an increase in the debt-to-GDP ratio not only via a denominator effect, but also via a numerator effect (i.e. adverse cyclical effects which, at least partially, offset the primary balance improvement generated by the consolidation effort).The aim of this paper is to investigate the effects of fiscal consolidation on the general government debt-to-GDP ratio in order to assess whether and under which conditions selfdefeating effects are likely to materialise and whether they tend to be short-lived or more persistent over time. We do so for a sample of Euro area countries for the period 2000Q1-2012Q1 using a panel VAR approach to which, following Favero and Giavazzi (2007), we add the government budget constraint. The main advan...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may THE GROWTH IMPACT OF DISCRETIONARY FISCAL POLICY MEASURES Maria Grazia Attinasi and Alexander KlemmIn 2014 all ECB publications feature a motif taken from the €20 banknote.NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily refl ect those of the ECB. AcknowledgementsWe are grateful to the ESCB's Working Group on Public Finance (WGPF) for authorising the use of data from the 'disaggregated approach' for this study. These data are confi dential, and therefore they are not reported herein. The opinions expressed herein are those of the authors and do not necessarily refl ect those of the European Central Bank or the Eurosystem. The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management. Maria Grazia AttinasiEuropean Central Bank; maria_grazia.attinasi@ecb.int Alexander KlemmInternational Monetary Fund; e-mail: aklemm@imf.org ABSTRACTThis paper looks at the impact of discretionary fiscal policy on economic growth for a sample of 18 EU countries over the period 1998-2011. The main novelty of this paper is the use, on the revenue side, of a dataset of fiscal measures based on the yield of actual legislative and budgetary measures, rather than approximations, such as changes in cyclically-adjusted variables. Using static and dynamic panel data techniques, we find that fiscal consolidation can be a drag on economic growth in the short-term, although some specific budget categories are not found to be statistically significant. In general, the results also indicate that expenditurebased adjustment tends to be less harmful than revenue-based adjustment. Among expenditure cuts, reductions in government investment and consumption are found to be growth reducing. Among revenues, indirect tax increases are found to have a particularly strong negative impact. Dynamic specifications suggest that consolidation reduces growth mainly in the year of fiscal adjustment, while future growth rates are affected only through the usual time persistence. Nonlinear specifications indicate that spreading out consolidation reduces the negative impact on growth, but only very slightly and in the absence of financial market pressures and/or fiscal sustainability considerations. Additionally, front-loading fiscal consolidation appears to be less detri...

No abstract

This paper investigates the relationship between public and private wages in the five largest euro area countries for the period 1997-2017. The analysis shows that there exists a positive and significant response of private wages to a public wage shock. This effect is found to be temporary and to differ across countries (positive and significant in France, Spain, Italy and non-significant in Germany and the Netherlands). Interestingly, the response of private wages is found to be asymmetric: a positive and statistically significant response is found in case of a positive shock to public wages, while no statistically significant effects are detected in case of a cut to public wages. As the public wage containment policies adopted during the sovereign debt crisis are expected to be gradually lifted in several euro area countries, the findings of this paper suggest that knock-on effects on private sector wages cannot be excluded in the years to come.