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Fiscal consolidations and spillovers in the Euro area periphery and core

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  • Jan in 't Veld

Abstract

A model-based assessment of the macro-economic impact of consolidations and their spillovers in the euro area in 2011-13. This paper uses a structural multi-country model to assess the impact of fiscal consolidation measures undertaken in 2011-13 in the EA periphery and core. The simulations assume 'crisis' conditions prevailing (high share of constrained households, ZLB). The GDP effects depend crucially on the composition of the consolidation and on how quickly expectations are affected. Expenditure-based consolidations have larger impact multipliers than revenue-based consolidations. Average multipliers for domestic fiscal shocks range from 0.5 and 1, depending on the degree of openness. But spillovers of fiscal consolidations are large, with both the demand channel and the competitiveness channel adding to the negative GDP effects. Higher risk premia add further to the negative GDP effects. Spillovers from consolidations in Germany and core EA have worsened the overall economic situation. A temporary fiscal stimulus in surplus countries can boost output and help reduce their current account surpluses. The improvement in current account deficits in the periphery is however small.

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  • Jan in 't Veld, 2013. "Fiscal consolidations and spillovers in the Euro area periphery and core," European Economy - Economic Papers 2008 - 2015 506, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecopap:0506
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    3. Salvador Barrios & Mathias Dolls & Anamaria Maftei & Andreas Peichl & Sara Riscado & Janos Varga & Christian Wittneben, 2019. "Dynamic Scoring Of Tax Reforms In The European Union," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 38(1), pages 239-262, January.
    4. Davoine, Thomas & Molnar, Matthias, 2020. "Cross-country fiscal policy spillovers and capital-skill complementarity in integrated capital markets," Economic Modelling, Elsevier, vol. 88(C), pages 132-150.
    5. Xavier Timbeau & OFCE Observatoire français des conjonctures économiques, 2014. "From austerity to stagnation how to avoid the deflation trap: The independant annual growth survey 2014," Sciences Po publications info:hdl:2441/c5gs2rgi93a, Sciences Po.
    6. Vítor Constâncio, 2020. "The Return of Fiscal Policy and the Euro Area Fiscal Rule," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 358-372, September.
    7. Matthias Burgert & Lucia Granelli & Hans Naudts, 2017. "An Assessment of the 'Crédit d'Impôt pour la Compétitivité et l'Emploi' and the 'Pacte de Responsabilité et Solidarité'," European Economy - Economic Briefs 032, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2019. "Government Investment, Its Financing and the Public Capital Stock: A Small Open Economy Perspective," Research Technical Papers 9/RT/19, Central Bank of Ireland.
    9. Luciano Andreozzi & Roberto Tamborini, 2017. "We need more Europe in the Monetary Union. Which Europe? Hints from policy games," EconPol Working Paper 5, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Cavallari, Lilia & Romano, Simone, 2017. "Fiscal policy in Europe: The importance of making it predictable," Economic Modelling, Elsevier, vol. 60(C), pages 81-97.
    11. Vítor Constâncio, 2020. "The return of fiscal policy and the euro area fiscal rule," Working Papers REM 2020/0127, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    12. Oliver Picek & Enno Schröder, 2017. "Euro area imbalances: How much could an expansion in the North help the South?," IMK Working Paper 180-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    13. repec:hal:spmain:info:hdl:2441/c5gs2rgi93abt1s4jkeabou1 is not listed on IDEAS
    14. Luigi Bonatti, 2016. "Anemic economic growth in advanced economies: structural factors and the impotence of expansionary macroeconomic policies," DEM Working Papers 2016/11, Department of Economics and Management.
    15. Philip R. Lane, 2019. "Macrofinancial Stability and the Euro," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(3), pages 424-442, September.
    16. Gadatsch, Niklas & Hauzenberger, Klemens & Stähler, Nikolai, 2016. "Fiscal policy during the crisis: A look on Germany and the Euro area with GEAR," Economic Modelling, Elsevier, vol. 52(PB), pages 997-1016.
    17. Christoph Bierbrauer, 2017. "Fiscal policy transmission in a non-Ricardian model of a monetary union," Working Papers 109, Institute of Empirical Economic Research, Osnabrueck University.
    18. Berger, Johannes & Graf, Nikolaus & Strohner, Ludwig & Schuh, Ulrich, 2014. "Auswirkungen von ausgaben- und einnahmenseitigen Konsolidierungen," Research Papers 2, EcoAustria – Institute for Economic Research.
    19. Vítor Constâncio, 0. "The Return of Fiscal Policy and the Euro Area Fiscal Rule," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 0, pages 1-15.

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