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Heterogeneity of fiscal adjustments in EU economies in the pre- and post-crisis periods: common correlated effects approach

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  • Olgica Glavaški

    (University of Novi Sad)

  • Emilija Beker Pucar

    (University of Novi Sad)

Abstract

This paper empirically assesses the heterogeneity of spending-side fiscal adjustments in the European Union (EU) economies when questions related to sustainability and fiscal policy prudence were renewed during the global crisis. The research analyzes the fiscal adjustment differences between pre- and post-crisis periods using fiscal variables stock-flow system of 28 EU economies for the period 2000q1–2018q4. The study considers cross-sectional dependent, non-stationary, heterogeneous panels using multicointegration relation. Results of the Common Correlated Effects approach reveal weak fiscal sustainability and heterogeneous evidence of public expenditure fiscal adjustments to accumulated public debts in a stochastic environment. Allowing fiscal authorities to implement heterogeneous fiscal adjustments led to ad hoc public expenditure changes in certain economies. These public expenditure changes are distinguished from proposed fiscal adjustments to stabilize public debt. Empirical findings indicate that post-crisis complementarity between supranational and domestic fiscal arrangements needs to be continuously improved.

Suggested Citation

  • Olgica Glavaški & Emilija Beker Pucar, 2021. "Heterogeneity of fiscal adjustments in EU economies in the pre- and post-crisis periods: common correlated effects approach," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(1), pages 191-226, March.
    • Handle: RePEc:spr:eurase:v:11:y:2021:i:1:d:10.1007_s40822-020-00164-z
    DOI: 10.1007/s40822-020-00164-z
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    More about this item

    Keywords

    Fiscal adjustments; European Union economies; Crisis; Common correlated effects approach;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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