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Panel data evidence on the effects of fiscal impulses in the EU New Member States

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Abstract

We identify fiscal impulses in the EU New Member States using four different methods and apply econometric panel data techniques to determine what is the response of the output and its components to those impulses. We also directly test the effects of fiscal impulses on labour costs and housholds’ expectations. The results confirm that the composition of impulses matters for output and its components’ response. Notably, we find evidence that investment and export growth accelerates after fiscal adjustment and decelerates after fiscal stimulus when the impulses are expenditure-based. In turn, private consumption seems not to respond to fiscal impulses regardless of their size. The analysis confirms that expenditure-based fiscal adjustments enhance wage moderation and thereby competitiveness of domestic enterprises, while expenditure-based fiscal stimuli weaken it. By contrast, we do not find evidence that fiscal impulses have an effect on households’ confidence.

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Bibliographic Info

Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 161.

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Length: 47
Date of creation: 2013
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Handle: RePEc:nbp:nbpmis:161

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Keywords: fiscal consolidation; non-Keynesian effects; New Member States; panel data;

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  1. Sanjeev Gupta & Alejandro Simone & Alex Segura-Ubiergo, 2006. "New Evidenceon Fiscal Adjustment and Growth in Transition Economies," IMF Working Papers 06/244, International Monetary Fund.
  2. Roberto Perotti, 2011. "The "Austerity Myth": Gain Without Pain?," NBER Working Papers 17571, National Bureau of Economic Research, Inc.
  3. Roberto Perotti, 2011. "The "Austerity Myth": Gain without Pain?," Working Papers 430, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
  5. Silber, William L, 1970. "Fiscal Policy in IS-LM Analysis: A Correction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 461-72, November.
  6. Roberto Perotti, 2011. "The "Austerity myth": Gain Without Pain?," BIS Working Papers 362, Bank for International Settlements.
  7. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  8. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
  9. Athanasios Tagkalakis, 2009. "Fiscal adjustments and asset price movements," Working Papers 104, Bank of Greece.
  10. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  11. Perotti, Roberto, 2011. "The "Austerity Myth": Gain without Pain?," CEPR Discussion Papers 8658, C.E.P.R. Discussion Papers.
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