Constricted, lame and pro-cyclical? Fiscal policy in the euro area revisited
AbstractIt is often argued that fiscal stabilisation in the euro area compares unfavourably with the US, not least because of the perceived limitations of the Stability and Growth Pact. This paper qualifies this perception by taking a closer look at fiscal policy making since the mid-1990s. It examines a number of elements which are generally overlooked or not considered in the analysis of fiscal stabilisation. In particular, on top of discretionary fiscal policy, which generally is at the core of existing studies, it also takes into account the size of automatic stabilisers. Moreover, it considers the difference between policy intentions, as formulated or perceived in real time, and actual outturns, and possible reasons for the gap between the two. On the basis of such a more comprehensive analysis, fiscal stabilisation in the euro area appears less dire than commonly assumed. It also suggests a number of points on how to improve the track record, including by strengthening fiscal governance.
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Bibliographic InfoPaper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 353.
Length: 34 pages
Date of creation: Dec 2008
Date of revision:
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Fiscal policy; fiscal stabilisation; euro area; automatic stabilisers; output gap; Deroose; Larch ; Schaechter;
Other versions of this item:
- Servaas Deroose & Martin Larch & Andrea Schachter, 2011. "Constricted, lame and pro-cyclical? Fiscal policy in the euro area revisited," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 3(2), pages 162-184.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H6 - Public Economics - - National Budget, Deficit, and Debt
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- Dufrénot G. & Paul L., 2010. "Fiscal developments in the euro area beyond the crisis: some lessons drawn from fiscal reaction functions," Working papers 292, Banque de France.
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