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Some Stylized Facts on Non-Systematic Fiscal Policy in the Euro Area

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  • Marcellino, Massimiliano

Abstract

We derive a set of stylized facts on the effects of non-systematic fiscal policy in the four largest countries of the Euro area, and discuss their implications for the fiscal policy coordination debate, for the effectiveness of fiscal shocks in stabilizing the economies, and for the interaction of fiscal and monetary policy. We find relevant differences across countries in the effects of non-systematic fiscal policy, and substantial uncertainty about the size of these effects, which casts doubts on the possibility of a fiscal coordination. Moreover, expenditure shocks are usually rather ineffective in increasing output growth or reducing its volatility, and can require deficit financing. Tax policies also appear to have minor effects on output, and tax cuts could also require deficit financing. Finally, fiscal shocks appear to have an impact on interest rates, either direct or through the output gap and inflation while, in general, the effects of monetary policy on disbursements and receipts seem to be minor.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3635.

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Date of creation: Nov 2002
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Handle: RePEc:cpr:ceprdp:3635

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Keywords: fiscal policy; monetary policy; policy coordination; stabilization policy;

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  1. Carlo A. Favero & Massimiliano Marcellino, . "Large Datasets, Small Models and Monetary Policy in Europe," Working Papers 208, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
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