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The (pro-) cyclicality of government consumption in the EU and official expectations of future output growth: new evidence

Author

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  • David Cronin

    (Central Bank of Ireland)

  • Kieran McQuinn

    (Economic and Social Research Institute (ESRI))

Abstract

Data from member states’ Stability and Convergence Programmes from 2011 to 2018 are used to assess the cyclicality of government consumption in the EU after the European Semester took effect. Econometric estimations, which address endogeneity issues, find the intended (ex-ante) fiscal policy to be pro-cyclical in nature. Government consumption is also found to be pro-cyclical ex-post but to a much lesser extent than ex-ante. This appears to be largely owing to a forecasting bias on the part of official forecasters occurring, despite the purported improvements to EU member states’ surveillance and forecasting mechanisms that have been put in place in recent years to address such bias.

Suggested Citation

  • David Cronin & Kieran McQuinn, 2021. "The (pro-) cyclicality of government consumption in the EU and official expectations of future output growth: new evidence," International Economics and Economic Policy, Springer, vol. 18(2), pages 331-345, May.
    • Handle: RePEc:kap:iecepo:v:18:y:2021:i:2:d:10.1007_s10368-020-00486-y
    DOI: 10.1007/s10368-020-00486-y
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    References listed on IDEAS

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    Cited by:

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    2. David Cronin, 2020. "Are Member States’ Budgetary Policies Adhering to the EU Fiscal Rules?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 66(1), pages 47-64.
    3. Cronin, David & McInerney, Niall, 2023. "Official fiscal forecasts in EU member states under the European Semester and Fiscal Compact – An empirical assessment," European Journal of Political Economy, Elsevier, vol. 76(C).
    4. Golpe, Antonio A. & Sánchez-Fuentes, A. Jesus & Vides, José Carlos, 2023. "Fiscal sustainability, monetary policy and economic growth in the Euro Area: In search of the ultimate causal path," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1026-1045.
    5. David Cronin, 2020. "Are Member States’ Budgetary Policies Adhering to the EU Fiscal Rules?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 66(1), pages 47-64.
    6. Cronin, David & McGowan, Kieran, 2023. "Government debt forecast errors and the net expenditure rule in EU countries," Papers WP756, Economic and Social Research Institute (ESRI).

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    More about this item

    Keywords

    Cyclicality of fiscal policy; forecasting bias; European Semester;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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