The European Debt Crisis and Fiscal Reaction Functions in Europe 2000-2012

Abstract

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: After the global financial crisis, some governments in the EU experienced serious debt financing problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance by assessing the fiscal conduct in the EU countries before and after the outbreak of the crisis. Fiscal reaction functions of the primary balance are estimated for different groups of EU countries using quarterly data for the pre-crisis period 2001-2008 and for the post-crisis period 2009-2012. The pre-crisis estimations reveal some differences in persistence and cyclical reaction between different groups of countries, but generally little feedback from the debt stock to the primary balance. The countries that eventually developed fiscal problems do not stand out. The post-crisis estimations show less counter-cyclicality and much more feedback from the debt stock, and these reactions are particularly pronounced for the countries with severe fiscal problems. Terms of use: Documents inJEL codes: E61, E62, H62, H63

Fiscal reaction to interest payments: The case of Serbia

“…Other contributions from the literature mainly focus on the solvency of government debt, and neglect to analyse the fiscal response to interest payments and borrowing costs. Notable exceptions familiar to us are Staehr (2008), Baldi and Staehr (2013), Debrun and Kinda (2013) and Mauro et al (2013). Second, we detect a myopic behaviour of the Serbian government from the onset of the global financial crisis.…”

“…Two findings are particularly worth emphasizing. First, only coefficient for −3 is significant at 10% level, and equals 0.13 The significance of the third lag points to very slow changes in primary fiscal balance as a consequence of discretionary fiscal policy measures, while the size of the estimated coefficient implies very flexible fiscal reaction function for primary fiscal balance, as in Staehr (2008) and Baldi and Staehr (2013). Although all other estimates remain very close to those from equation (9), fourth lag autocorrelation is still present at 10% significance level.…”

The European debt crisis and fiscal reactions in Europe 2000–2014

“…Second, inclusion of time fixed effects (instead of the quarterly dummies and the trend) reduces the size of the coefficients of output growth markedly, but does not change the estimated coefficients of the lagged debt variable. Third, the country-specific debt variable minus the average debt for the 27 EU countries is borderline stationary in most cases, but when this variable is included instead of DEBT all results remain qualitatively unchanged (not reported; see also Baldi & Staehr 2013). Table 4 reported the results from estimations on pre-crisis data of the reaction of the primary balance to its lagged value, the year-on-year growth and the debt stock.…”

Fiscal Sustainability: Does EU Membership Change Policy Behavior? Empirical Evidence from Central and Eastern Europe

“…Whereas, for example, Burger (2012) and Fincke and Greiner (2011a) utilize Bohn (1995, 1998 For a more detailed discussion on these literature approaches see for example Fincke (2012 (2010) and Baldi and Staehr (2013) utilize fiscal response functions to study the public finance situation in CEECs with a special focus on the current crisis. (2013) By applying Bohn's approach, this paper goes into a similar direction like Stoian and Câmpeanu (2010) and Baldi and Staehr (2013), however, a special focus is set on the 2004 enlargement, meaning, this contribution not only tests sustainability for the eastern NMS in general, but especially accounts for the behavior before and after EU accession.…”