Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?

Buti, Marco; Martínez-Mongay, Carlos; Sekkat, Khalid; Noord, Paul van den

doi:10.1093/cesifo/49.1.123

Cited by 16 publications

(11 citation statements)

References 18 publications

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“…To sum up, expectation effects may imply that fiscal policy effects become more or less Keynesian, 17 and hence it is not possible to make unambiguous conclusions on how expectation formation influences fiscal policy. Expectation formation has implications for implementation of fiscal policy, cf.. below, and one lesson from the empirical evidence is that expectations matter, and credibility problem make it is easier to have them working against you than for you.…”

Section: Expectationsmentioning

confidence: 99%

Is there a Role for an Active Fiscal Stabilization Policy?

Andersen

2005

CESifo Economic Studies

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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. Abstract This paper discusses the need and scope for an active fiscal stabilization policy. It is argued that the effectiveness of fiscal policy as a short run stabilizer does not depend on the long run multipliers of (balanced budget) fiscal policies. To the extent that activity can be affected by aggregate demand in the short run, there is a case for a fiscal stabilization policy in terms of temporary variations in taxes or public consumption contingent on the state of the economy. The effectiveness of fiscal policy is supported by empirical evidence. However, an appropriate policy intervention depends both on the nature of the shock and the structure of the economy. There are thus fundamental information problems in pursuing discretionary fiscal policies on top of political economy concerns, and fiscal fine-tuning is not to be recommended. Automatic stabilizers do not to the same extent suffer from these problems, but their strength is not by design but the net result of other policy considerations. Hence, there is a need to consider the structure and size of automatic stabilizers. Terms of use: Documents inJEL Code: E6.

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Section: Expectationsmentioning

confidence: 99%

Is there a Role for an Active Fiscal Stabilization Policy?

Andersen

2005

CESifo Economic Studies

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“…Fatás and Mihov (2001) as well as Kim and Lee (2007) demonstrate how government size (which approximates automatic stabilisers 4 ) is negatively correlated with output volatility. However, this relationship is rather complex - Buti et al (2003) find that the relationship between government size and output volatility is positive on the demand side but negative on the supply side. The supply side relationship can be characterised by taxes on production so that the impact on the supply side is smaller only if taxes become more proportional (as an example, consider workers demanding higher wages to offset the tax increases).…”

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

South Africa's Transition to a Consolidated Budget

Jooste

Marinkov²

2012

South African J Economics

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The size of South Africa's fiscal stimuli, whether intended or not, has helped to avert negative consequences of the global financial downturn. With the economic cycle turning again, consolidation of deficits and a reduction of the level of debt are again the focus of policymakers. These outcomes are generally achieved by either increasing tax rates or cutting spending (discretionary fiscal policy), whereas an alternative option is to allow automatic stabilisers to consolidate budgets. This study attempts to answer whether cyclical factors or discretionary policy minimise output volatility and which one of the two presents a better policy option regarding uncertainty in real economic recovery. For this purpose, a small open‐economy gap model is built using South African data, where the budget deficit is endogenised by way of a fiscal policy “rule.” Sensitivity analyses and robustness checks are carried out using a structural vector autoregression. Given the estimates of both the automatic stabilisers as well as the components of discretionary fiscal policy, we are able to obtain impact multipliers on output and conduct scenario testing for optimal fiscal policy response towards fiscal consolidation as well as debt sustainability.

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“…This led to concerns that euro area countries would actually be torn between the need to ensure adequate macroeconomic stabilization and the reduction in the size of government that often accompanied efforts to boost market efficiency and promote long-term growth. EMU countries would thus be facing a difficult trade-off between maintaining large governments to ensure sufficient automatic fiscal stabilization and leaner ones to ensure efficiency and growth: in EU jargon, there could be a tension between the 'Maastricht' and the 'Lisbon' goals (Buti et al, 2003). Such a trade-off would be particularly unfavorable in countries where growth performance was deemed dismal and the perceived need for reforms correspondingly large.…”

Section: Introduction *mentioning

confidence: 99%