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What determines fiscal balances? An empirical investigation in determinants of changes in OECD budget balances

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  • Tujula, Mika
  • Wolswijk, Guido

Abstract

Fiscal balances have deteriorated quickly in recent years, bringing back to the foreground the question what factors help explain such sharp changes. This paper takes a broad perspective at the issue regarding countries included, the range of explanatory variables tried, and the time-span. The empirical analysis shows that changes in budget balances are affected by debt growth, macroeconomic developments and political factors. In particular, we find that the run-up to EMU induced additional consolidation in Europe and that budget balances deteriorate markedly in election years. Asset prices also may affect budgets, but the impact remains limited in normal times. JEL Classification: E61, E62, H61, H62

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0422.

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Date of creation: Dec 2004
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Handle: RePEc:ecb:ecbwps:20040422

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Related research

Keywords: asset prices; budget balance; Economic Growth; Fiscal Policy; Stability and Growth Pact;

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Cited by:
  1. Leblang, David & Satyanath, Shanker, 2008. "Politically generated uncertainty and currency crises: Theory, tests, and forecasts," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 480-497, April.
  2. Silika Prohl & Friedrich G. Schneider, 2006. "Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries," Economics working papers 2006-10, Department of Economics, Johannes Kepler University Linz, Austria.
  3. António Afonso, 2008. "Ricardian fiscal regimes in the European Union," Empirica, Springer, vol. 35(3), pages 313-334, July.
  4. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012. "Sovereign risk premiums in the European government bond market," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 975-995.
  5. Georgios Efthyvoulou, 2010. "Political Budget Cycles in the European Union and the Impact of Political Pressures: A dynamic panel regression analysis," Birkbeck Working Papers in Economics and Finance 1002, Birkbeck, Department of Economics, Mathematics & Statistics.
  6. John Lewis, 2013. "Fiscal policy in Central and Eastern Europe with real time data: cyclicality, inertia and the role of EU accession," Applied Economics, Taylor & Francis Journals, vol. 45(23), pages 3347-3359, August.
  7. Mark Mink & Jakob de Haan, 2006. "Are there Political Budget Cycles in the Euro Area?," European Union Politics, , vol. 7(2), pages 191-211, June.
  8. Gábor P. Kiss, 2007. "Pain or Gain? Short-term Budgetary Effects of Surprise Inflation - the Case of Hungary," MNB Occasional Papers 2007/61, Magyar Nemzeti Bank (the central bank of Hungary).
  9. Cousins, Mel, 2007. "Political budget cycles and social security budget increases in the Republic of Ireland, 1923-2005," MPRA Paper 5359, University Library of Munich, Germany.
  10. Anthony Annett, 2006. "Enforcement and the Stability and Growth Pact," IMF Working Papers 06/116, International Monetary Fund.
  11. Matti Virén, 2006. "Fiscal Policy in the 1920s and 1930s. How much different it is from the post war period's policies," Discussion Papers 402, Government Institute for Economic Research Finland (VATT).
  12. Jochen Mierau & Richard Jong-A-Pin & Jakob de Haan, 2007. "Do political variables affect fiscal policy adjustment decisions? New empirical evidence," Public Choice, Springer, vol. 133(3), pages 297-319, December.
  13. Virén , Matti, 2005. "Fiscal policy in the 1920s and 1930s How much different it is from the post war period's policies?," Research Discussion Papers 15/2005, Bank of Finland.

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