On Constraining Fiscal Policy Discretion in EMU

Fatás, Antonio

doi:10.1093/oxrep/19.1.112

Cited by 117 publications

(64 citation statements)

References 31 publications

(25 reference statements)

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“…The breakdate around 1995 for Spain, the Netherlands and Austria is consistent with evidence in Fatas and Mihov (2003). 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 1982 1984 1986 1988 1990 1992 1994 1996 1998 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 The Netherlands 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 This result supports also some of the political economy models of fiscal stabilisations (Alesina and Drazen, 1999).…”

supporting

confidence: 86%

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Policy mix and debt sustainability: evidence from fiscal policy rules

Claeys

2006

Empirica

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This paper characterises rules-based fiscal policy setting. Basically, we translate a standard monetary policy rule into a simple fiscal policy rule. We then infer on fiscal policymakers' reaction coefficients by testing the rule with GMM. Interaction is also tested directly by the inclusion of monetary policy setting. Our results qualify existing evidence on systematic fiscal policy in two respects. First, fiscal policy usually stabilises public debt. And there is indeed substantial interaction between fiscal and monetary policy via the debt channel. Second, sustainability is achieved with a "stop-go" cycle of consolidation. Consolidation does not come at the cost of less cyclical stabilisation unless debt ratios are high.JEL Code: E61, E63.

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supporting

confidence: 86%

“…Second, the nineties have been characterised by much more persistent behaviour. With the exception of Germany, it seems that the Maastricht conditions led to reductions in the primary deficit in the European countries, and especially so after 1995 (Fatas and Mihov, 2003). A similar fall is apparent in the United…”

mentioning

confidence: 91%

Policy mix and debt sustainability: evidence from fiscal policy rules

Claeys

2006

Empirica

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“…A first and simple approach consists in regressing the fiscal policy variable on a measure of the cycle and to interpret the residuals as the discretionary policy component. For instance, Fatas and Mihov (2003) use this approach and find that the residuals of the fiscal policy reaction functions of euro area countries diminished over time, indicating less reliance on discretionary fiscal policy. …”

mentioning

confidence: 99%

Fiscal policy reaction to the cycle in the OECD: pro- or counter-cyclical?

Égert¹

2014

Mondes en Développement

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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. This paper analyses the reaction of fiscal policy to the cycle in OECD countries. The results suggest that while overall government balances were counter-cyclical in the past and more so in economic downturns than in upswings, discretionary fiscal policy was neutral on average. However, discretionary fiscal policy appears to react to the cycle in a non-linear fashion: fiscal policy in countries with high public debt and high government deficits tends to be procyclical, while countries that have low public debt and that have surpluses are more likely to conduct a counter-cyclical fiscal policy. The paper also finds that asset prices have a significant impact on government balances. Terms of use: Documents in EconStor mayJEL-Code: E320, E620, H210, H300, H600, C330.Keywords: fiscal policy, pro-cyclicality, counter-cyclicality, OECD countries. Balázs Égert OECD Economics DepartmentParis / France balazs.egert@oecd.org OECD Economics Department. This is one of the background papers for the OECD's project on counter-cyclical economic policy. The main paper was issued as the OECD Economics Department Working Paper No. 760. The author is grateful to Jorgen Elmeskov, Peter Hoeller, Jean-Luc Schneider, Oliver Röhn and Douglas Sutherland for useful comments and suggestions and Susan Gascard for excellent editorial support. Introduction and main findings 1.This paper analyses the fiscal policy reaction to the cycle in OECD countries during the last 30 years or so. It studies the behaviour of observed and planned cyclically-unadjusted and adjusted government balances and the components of government spending and revenues over the cycle. The paper also investigates whether fiscal policy reactions are linear or whether they depend on the size of the public debt and of government balances or the position in the cycle, whether the results are sensitive to alternative measures of the cycle, the estimation methods used or the inclusion of different sets of control variables. The results can be summarised as follows. 2.First, cyclically-unadjusted balances 2 are positively correlated with the output gap or GDP growth, implying an improving balance during an expansion and a worsening balance during economic slowdowns. In other words, overall fiscal policy (including automatic stabilisers and discretionary actions) was counter-cyclical. If asymmetries are allowed over the cycle, unadjusted balances were more countercyclical during downturns than during expansions. 3.Second, di...

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“…It can thus be expected that the Maastricht criteria positively affected the consolidation of public finances of the countries joining the EMU. Early on, some authors such as Fatás and Mihov (2003) started to observe the so-called post-Maastricht fatigue effect, i.e., the relaxation of fiscal discipline immediately after introducing the euro. Fiscal rules were said to positively affect fiscal discipline only up until a country entered the EMU as it still feared it would not be able to join the euro area.…”

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confidence: 99%

The impact of supranational fiscal rules on public finance: the case of EMU member states

Aristovnik

Meze

2017

GBER

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Abstract:The following paper deals with the topical issue of fiscal surveillance in the EMU. We focus on analysing the impact of the EU's supranational fiscal rules [i.e., the Maastricht criteria for entering the EMU and the subsequent stability and growth pact (SGP)] on the fiscal behaviour of EMU member states in order to acquire new insights into solutions needed to ensure fiscal discipline in the future. With the regression of fiscal reaction functions for the panel of euro area countries, we estimate the changes occurring in discretionary fiscal policy in the Maastricht period and in the period after entering the EMU when the policy became governed by the SGP. Estimates show that EMU member states' discretionary fiscal policy was procyclical in the 1980s, but turned countercyclical in the Maastricht period. In the SGP period, the countercyclical behaviour decreased and fiscal policy became acyclical. We conclude that the difference in fiscal behaviour before and after entering the EMU is the result of a change in the incentives and that solutions should thus also be looked for in creating certain forms of positive incentives for fiscal discipline.

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On Constraining Fiscal Policy Discretion in EMU

Cited by 117 publications

References 31 publications

Policy mix and debt sustainability: evidence from fiscal policy rules

Policy mix and debt sustainability: evidence from fiscal policy rules

Fiscal policy reaction to the cycle in the OECD: pro- or counter-cyclical?

The impact of supranational fiscal rules on public finance: the case of EMU member states

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