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Fiscal policies enhancing growth in Europe: does one size fit all?

Author

Listed:
  • Carine Bouthevillain

    (Centre de recherche de la Banque de France - Banque de France)

  • Gilles Dufrénot

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

Abstract

This paper provides evidence of various reactions of growth rates to changes in the composition of taxes and public spending in Europe. We use a quantile estimator to allow different slopes of fiscal variables, across countries and years. We find that sovereign spending should be encouraged in the medium term if growth is low, but the medium-term effect on the economic activity is not positive in situations of moderate or rapid growth. Human capital expenditure jeopardizes growth, if a country belongs to the group of under-performers, while the initial costs are progressively transformed into growth-friendly factors for the group of over-achievers. Welfare expenditure is unproductive in the medium term, but only above a given growth threshold. Higher direct taxes are more harmful for low-growth countries, since their effects are more persistent than for countries with high growth. Our findings are contrary the idea that one size fits all.

Suggested Citation

  • Carine Bouthevillain & Gilles Dufrénot, 2016. "Fiscal policies enhancing growth in Europe: does one size fit all?," Post-Print hal-01446204, HAL.
    • Handle: RePEc:hal:journl:hal-01446204
    DOI: 10.1093/oep/gpw028
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    Cited by:

    1. Galina Besstremyannaya & Sergei Golovan, 2019. "Reconsideration of a simple approach to quantile regression for panel data: a comment on the Canay (2011) fixed effects estimator," Working Papers w0249, Center for Economic and Financial Research (CEFIR).
    2. Galina Besstremyannaya & Sergei Golovan, 2019. "Reconsideration of a simple approach to quantile regression for panel data: a comment on the Canay (2011) fixed effects estimator," Working Papers w0249, New Economic School (NES).

    More about this item

    Keywords

    E62; H30;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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