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On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data

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Author Info
Beetsma, Roel
Giuliodori, Massimo

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Abstract

We investigate the interdependence of fiscal policies, and in particular deficits, in the European Union using an empirical analysis based on real-time fiscal data. There are many potential reasons why fiscal policies could be interdependent, such as direct externalities due to cross-border public investments, yardstick competition, tax competition and peer pressure among governments. The advantage of using real-time data is that they better reflect the policymakers’ intentions than revised data. Real-time data allow us to investigate how available information is mapped into policymakers’ plans, while revised data are generally 'polluted' with ad hoc reactions to unexpected developments that have taken place after the plan was made. Controlling for a large set of relevant determinants of primary cyclically adjusted deficits, we find indeed evidence of fiscal policy interdependence. However, the interdependence is rather asymmetrically distributed: the fiscal stances of the large countries affect the fiscal stances of the small countries, but not vice versa.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6088.

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Date of creation: Feb 2007
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Handle: RePEc:cpr:ceprdp:6088

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Keywords: European Union fiscal policy interdependence monetary union primary cyclically adjusted deficit real-time data

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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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. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics. [Downloadable!]
  2. Marco Buti & Paul Noord, 2004. "Fiscal Discretion and Elections in the Early Years of EMU," Journal of Common Market Studies, Blackwell Publishing, vol. 42(4), pages 737-756, November. [Downloadable!] (restricted)
  3. Massimo Giuliodori & Roel Beetsma, 2005. "What are the Trade Spill-Overs from Fiscal Shocks in Europe? An Empirical Analysis**," De Economist, Springer, vol. 127(2), pages 167-197, 06. [Downloadable!] (restricted)
  4. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December. [Downloadable!] (restricted)
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  5. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR, CES, MSH, vol. 21(47), pages 491-534, 07. [Downloadable!] (restricted)
  6. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR, CES, MSH, vol. 21(47), pages 443-489, 07. [Downloadable!] (restricted)
  7. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February. [Downloadable!] (restricted)
  8. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics. [Downloadable!]
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  9. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CES, MSH, vol. 13(26), pages 65-113, 04. [Downloadable!] (restricted)
  10. Beetsma, Roel & Giuliodori, Massimo & Klaassen, Franc, 2005. "Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis," CEPR Discussion Papers 5222, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October. [Downloadable!] (restricted)
  12. Baicker, Katherine, 2005. "The spillover effects of state spending," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 529-544, February. [Downloadable!] (restricted)
  13. Lorenzo Forni & Sandro Momigliano, 2004. "Cyclical sensitivity of fiscal policies based on real-time data," Temi di discussione (Economic working papers) 540, Bank of Italy, Economic Research Department. [Downloadable!]
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  14. Anthony Annett, 2006. "Enforcement and the Stability and Growth Pact: How Fiscal Policy Did and Did Not Change Under Europe's Fiscal Framework," IMF Working Papers 06/116, International Monetary Fund. [Downloadable!]
  15. Jakob de Haan & Helge Berger & David-Jan Jansen, 2004. "Why has the Stability and Growth Pact Failed?," International Finance, Blackwell Publishing, vol. 7(2), pages 235-260, 07. [Downloadable!] (restricted)
  16. Hughes Hallett, Andrew & Kattai, Rasmus & Lewis, John, 2007. "Early Warning or Just Wise After the Event? The Problem of Using Cyclically Adjusted Budget Deficits for Fiscal Surveillance," CEPR Discussion Papers 6213, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Gregory, Allan W. & Yetman, James, 2004. "The evolution of consensus in macroeconomic forecasting," International Journal of Forecasting, Elsevier, vol. 20(3), pages 461-473. [Downloadable!] (restricted)
  18. Martin Larch & Matteo Salto, 2005. "Fiscal rules, inertia and discretionary fiscal policy," Applied Economics, Taylor and Francis Journals, vol. 37(10), pages 1135-1146, June. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. John P. Jackson & Mark J. Manning, 2007. "Central Bank intraday collateral policy and implications for tiering in rtgs payment systems," DNB Working Papers 129, Netherlands Central Bank, Research Department. [Downloadable!]
  2. Andrew Hughes Hallet & Rasmus Kattai & John Lewis, 2007. "Early Warning or Just Wise After the Event?," DNB Working Papers 124, Netherlands Central Bank, Research Department. [Downloadable!]
  3. Andrew Hughes Hallett & Rasmus Kattai & John Lewis, 2007. "Early warning or just wise after the event? The problem of using cyclically adjusted budget deficits for fiscal surveillance," Bank of Estonia Working Papers 2007-02, Bank of Estonia, revised 09 Feb 2007. [Downloadable!]
    Other versions:
  4. Kerstin Bernoth & Andrew Hughes Hallet & John Lewis, 2008. "Did fiscal policy makers know what they were doing? Reassessing fiscal policy with real-time data," DNB Working Papers 169, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
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