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Delayed mimicking: the timing of fiscal interactions in Europe

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  • Hory, Marie-Pierre

Abstract

Fiscal interactions in Europe are a major challenge. Countries can cooperate or be engaged in a tax or a yardstick competition process. This paper uses a Spatial Dynamic Panel Data model (SDPD) to test the timing of fiscal stances interactions in Europe. Results show that fiscal interactions are not contemporaneous: governments mimic the behavior of neighboring governments on the last year, leading to a kind of “delayed mimicking” behaviors. This result is then used and deepened to discriminate between the three main rationales for fiscal interactions. Using original weighting schemes based on political proximity and similarities between investment contexts, we show that fiscal interactions in Europe are likely due to yardstick competition. Implications are twofold: on one hand controlling for delayed interactions when fiscal interactions are estimated is necessary, and, on the other hand, more organizations are needed in Europe in order to foster cooperation and thus to improve fiscal policy efficiency.

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  • Hory, Marie-Pierre, 2018. "Delayed mimicking: the timing of fiscal interactions in Europe," European Journal of Political Economy, Elsevier, vol. 55(C), pages 97-118.
    • Handle: RePEc:eee:poleco:v:55:y:2018:i:c:p:97-118
    DOI: 10.1016/j.ejpoleco.2017.11.005
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    More about this item

    Keywords

    Fiscal policy interactions; Spatial Dynamic Panel Data model; Europe;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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