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Keynesian, non-Keynesian or no effects of fiscal policy changes? The EMU case

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  • van Aarle, Bas
  • Garretsen, Harry

Abstract

This paper studies the experiences with fiscal adjustments in the EuropeanUnion (EU) countries during the transition period to the Economic andMonetary Union (EMU). Using several approaches suggested in the literatureon fiscal adjustments and their macroeconomic effects and in the literatureon EMU, we analyze the effects of the fiscal adjustments during this periodon private consumption. Thereby, we also take the specific context of thetransition towards EMU explicitly into consideration. At best mixed evidencefor the presence of non-linearities in the relation between fiscal adjustmentsand private spending is obtained. There is no clear-cut evidence for thehypothesis of “expansionary fiscal contractions” which may have alleviatedthe burden from fiscal consolidation in the EMU case. The sensitivity of theresults for a number of factors is also checked.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 25 (2003)
Issue (Month): 2 (June)
Pages: 213-240

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Handle: RePEc:eee:jmacro:v:25:y:2003:i:2:p:213-240

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Web page: http://www.elsevier.com/locate/inca/622617

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References

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  1. Bertola, G. & Drazen, A., 1991. "Trigger Pointsand Budget Cuts ; Explaining the Effects of Fiscal Austerity," Papers 26-91, Tel Aviv.
  2. Sutherland, Alan, 1995. "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," CEPR Discussion Papers 1246, C.E.P.R. Discussion Papers.
  3. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  4. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. repec:fth:eeccco:148 is not listed on IDEAS
  6. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
  7. Francesco P. Mongelli, 1996. "The Effects of the European Economic and Monetary Union (EMU)on National Fiscal Sustainability," IMF Working Papers 96/72, International Monetary Fund.
  8. De Bandt, Olivier & Mongelli, Francesco Paolo, 2000. "Convergence of fiscal policies in the euro area," Working Paper Series 0020, European Central Bank.
  9. Perotti, Roberto & Strauch, Rolf & von Hagen, Jürgen, 1997. "Sustainability of Public Finances," CEPR Discussion Papers 1781, C.E.P.R. Discussion Papers.
  10. repec:fth:coluec:754 is not listed on IDEAS
  11. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
  12. Alesina, Alberto & Perotti, Roberto, 1995. "Taxation and redistribution in an open economy," European Economic Review, Elsevier, vol. 39(5), pages 961-979, May.
  13. Francesco Giavazzi & Marco Pagano, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc.
  14. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  15. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
  16. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
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