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Short-term monitoring of fiscal policy discipline

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Author Info
Gonzalo Camba-Mendez (Directorate of Research, European Central Bank, Frankfurt am Main, Germany)
Ana Lamo (Directorate of Research, European Central Bank, Frankfurt am Main, Germany)

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Abstract

Under the Maastricht Treaty and the Stability and Growth Pact (SGP), European Union (EU) Member States commit themselves to avoid excessive deficits over 3% of GDP and to pursue the medium-term objective of budgetary positions close to balance or in surplus. The SGP also provides regulation for the surveillance of budgetary positions. An analysis of tools for the surveillance of budgetary positions is the focus of this paper. In particular, it addresses two open issues in the empirical public finance literature which are crucial for monitoring fiscal policy discipline in the EU. First, the estimation of the structural component of the fiscal balance ratio. Second, the computation, when only annual fiscal data are available, of quarterly budget balance ratios, using relevant information from quarterly measured macroeconomic series. An econometric model that addresses both issues is presented and estimated. Additionally, this modelling framework allows us to answer questions such as: what is the safety margin that will prevent a particular country from reaching, with certain probability, a budget deficit that breaches the 3% upper bound? Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.728
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File URL: http://qed.econ.queensu.ca:80/jae/2004-v19.2/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 19 (2004)
Issue (Month): 2 ()
Pages: 247-265
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Handle: RePEc:jae:japmet:v:19:y:2004:i:2:p:247-265

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Economics Department. [Downloadable!]
  2. Bruneau, C. & De Bandt, O., 1999. "Fiscal Policy in the Transition to Monetary Union: a Structural VAR Model," Papers 60, Banque de France - Direction Generale des Etudes.
  3. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer. [Downloadable!] (restricted)
  4. Herschel I. Grossman, 1982. "The American Fiscal Deficit: Facts and Effects," NBER Working Papers 0934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Alesina, Alberto & Perotti, Roberto, 1996. "Fiscal Discipline and the Budget Process," American Economic Review, American Economic Association, vol. 86(2), pages 401-07, May. [Downloadable!] (restricted)
  6. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  7. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
  8. Fernandez, Roque B, 1981. "A Methodological Note on the Estimation of Time Series," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 471-76, August. [Downloadable!] (restricted)
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  1. Teresa Leal & Javier J. Pérez, 2004. "Monitorización de objetivos fiscales anuales: una aplicación con datos regionales," Economic Working Papers at Centro de Estudios Andaluces E2004/66, Centro de Estudios Andaluces. [Downloadable!]
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