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Fiscal Rules in Economic Crisis: The Trade-off Between Consolidation and Recovery, from a European Perspective

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  • Díaz-Roldán Carmen

    (Department of Economics, Universidad de Castilla-La Mancha, Instituto de Economía Internacional, Ciudad Real, Spain)

  • Filho Fernando Ferrari

    (Department of Economics and International Relations, Universidade Federal do Rio Grande do Sul, Porto Alegre, Conselho Nacional de Desenvolvimento Científico e Tecnológico, Brasília, Porto Alegre, Brazil)

  • da Silva Bichara Julimar

    (Department of Estructura Económica y Economía del Desarrollo, Universidad Autónoma de Madrid, Madrid, Spain)

Abstract

In this study, we will perform a simulation exercise to investigate whether the use of explicit fiscal rules improves the macroeconomic performance in the economic framework of the European Union (EU), where the fall in income levels occurred very asymmetrically, and this has accentuated the social inequality that existed before the recent crises. To evaluate the performance of fiscal rules, we will allow for a fiscal rule keeping the growth of the public expenditure below the growth of the inflation. This special design of the fiscal rule is a novelty in the European context, although the inflation constraint has been successfully implemented in other countries as, for example, Brazil. As the results, we expect to find that before the financial crisis of 2008, the EU public finances keep relatively stable. However, after the crisis, the budget of the member states suffered a significant deterioration. In addition, therefore, we will discuss to which extent the use of proper fiscal rules could help to rationalize fiscal consolidation efforts.

Suggested Citation

  • Díaz-Roldán Carmen & Filho Fernando Ferrari & da Silva Bichara Julimar, 2021. "Fiscal Rules in Economic Crisis: The Trade-off Between Consolidation and Recovery, from a European Perspective," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 199-216, January.
    • Handle: RePEc:bpj:econoa:v:15:y:2021:i:1:p:199-216:n:11
    DOI: 10.1515/econ-2021-0013
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal rules; consolidation; crisis;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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