Euro Membership and Fiscal Reaction Functions
AbstractThe paper uses fiscal reaction functions for a panel of euro-area countries to investigate whether euro membership has reduced the responsiveness of countries to shocks in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, such as an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from preexisting debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4255.
Date of creation: 2013
Date of revision:
debt sustainability; fiscal reaction function; euro area;
Other versions of this item:
- Zimmer, Jochen & Weichenrieder, Alfons, 2013. "Euro Membership and Fiscal Reaction Functions," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80045, Verein für Socialpolitik / German Economic Association.
- Weichenrieder, Alfons J. & Zimmer, Jochen, 2013. "Euro membership and fiscal reaction functions," SAFE Working Paper Series 18, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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