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Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach

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Author Info
Thomas Dalsgaard
Alain de Serres ()

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Abstract

In this paper, a structural VAR model is estimated for 11 EU countries in order to assess the effect on the government deficit ratio of four independent economic disturbances: supply, fiscal, real private demand and monetary shocks. Based on the estimated distribution of these shocks, stochastic simulations are performed to derive estimates of cyclically-adjusted budget balances that would have to be maintained to avoid breaching the Stability and Growth Pact’s 3 per cent of GDP deficit limit over different time horizons and with varying degrees of confidence. In order to capture the movement in the deficit stemming from automatic stabilisation, fiscal policy shocks are turned off during the simulations. The results suggest that, for the majority of countries, if governments were to aim for a cyclically-adjusted budget deficit between 1.0 and 1.5 per cent of GDP, the actual deficit would, with a 90 per cent likelihood, remain within the 3 per cent limit over a three-year horizon ...


Dans cette étude, les auteurs estiment un modèle VAR structurel pour 11 pays de l’union européenne afin d’évaluer l’effet sur le solde budgétaire du secteur public en proportion du PIB de quatre chocs économiques indépendants, soit des chocs de politique fiscale et monétaire ainsi que des chocs d’offre et de demande réelle du secteur privé. A partir de la distribution estimée de ces chocs, des simulations stochastiques sont utilisées pour dériver des estimations du solde budgétaire corrigé des influences conjoncturelles qui permettraient de minimiser les risques que la limite de 3 pour cent fixée dans le cadre du Pacte de Stabilité et Croissance ne soit franchi sur divers horizons temporels et pour différents seuils de confiance. Les chocs de politique fiscale sont maintenus à zéro au cours des simulations afin de ne prendre en compte que le mouvement du solde budgétaire qui relève des effets de stabilisation automatique. Il ressort de l’analyse que si les gouvernements visaient un ...

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Paper provided by OECD Economics Department in its series OECD Economics Department Working Papers with number 216.

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Date of creation: 25 Jun 1999
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Handle: RePEc:oec:ecoaaa:216-en

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  1. Ray Barrell & Ian Hurst & Álvaro Pina, 2002. "Fiscal Targets, Automatic Stabilisers and their Effects on Output," Working Papers 2002/05, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  2. Michael J. Artis & Marco Buti, 2000. "Close to Balance or in Surplus. A Policy Maker’s Guide to the Implementation of the Stability and Growth Pact," EUI-RSCAS Working Papers 28, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS). [Downloadable!]
    Other versions:
  3. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2007. "Fiscal forecasting - lessons from the literature and challenges," Working Paper Series 843, European Central Bank. [Downloadable!]
  4. Jerome Creel, 2003. "Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact," Documents de Travail de l'OFCE 2003-04, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  5. Rasmus Kattai & Alvar Kangur & Martti Randveer, 2003. "Automatic fiscal stabilisers in Estonia: the impact of economic fluctatios on general government budget balance," Bank of Estonia Working Papers 2003-11, Bank of Estonia, revised 10 Oct 2003. [Downloadable!]
  6. Matti Virén, 2000. "Fiscal Policy, Automatic Stabilisers and Policy Coordination in EMU," Discussion Papers 744, The Research Institute of the Finnish Economy. [Downloadable!]
  7. Artis, Michael J & Onorante, Luca, 2006. "The Economic Importance of Fiscal Rules," CEPR Discussion Papers 5684, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. C. Gabriel Di Bella, 2002. "Automatic Fiscal Stabilizers in France," IMF Working Papers 02/199, International Monetary Fund. [Downloadable!]
  9. J. de Haan & H. Berger & D. Jansen, 2003. "The end of the stability and growth pact?," WO Research Memoranda (discontinued) 748, Netherlands Central Bank, Research Department. [Downloadable!]
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  10. Francis Y. Kumah & John Matovu, 2005. "Commodity Price Shocks and the Odds on Fiscal Performance," IMF Working Papers 05/171, International Monetary Fund. [Downloadable!]
  11. Sylvain Martel, 2005. "Y a-t-il eu surinvestissement au Canada durant la seconde moitié des années 1990?," Working Papers 05-5, Bank of Canada. [Downloadable!]
  12. Gonzalo Camba-Mendez & Ana Lamo, 2004. "Short-term monitoring of fiscal policy discipline," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 247-265. [Downloadable!]
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  13. Rasmus Kattai & Kaie Kerem & Kadrin Keres & Martti Randveer, 2004. "Fiscal Policy as a Determinant of Consumption Expenditure: The Estonian Case," Working Papers 111, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  14. Robert A Buckle & Kunhong Kim & Julie Tam, 2001. "A Structural VAR Approach to Estimating Budget Balance Targets," Treasury Working Paper Series 01/11, New Zealand Treasury. [Downloadable!]
  15. Jaakko Kiander & Matti Virén, 2000. "Do automatic stabilisers take care of asymmetric shocks in the euro area?," VATT Discussion Papers 234, Government Institute for Economic Research (VATT). [Downloadable!]
  16. John Janssen, 2001. "New Zealand's Fiscal Policy Framework: Experience and Evolution," Treasury Working Paper Series 01/25, New Zealand Treasury. [Downloadable!]
  17. Peter CLAEYS, 2004. "Monetary and budgetary policy interaction: an SVAR analysis of stabilisation policies in monetary union," Economics Working Papers ECO2004/22, European University Institute. [Downloadable!]
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