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Fiscal Convergence, Business Cycle Volatility and Growth

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  • Davide Furceri

Abstract

This paper analyzes the effects of fiscal convergence on business cycle volatility and growth. Using a panel 21 OECD countries (including 11 EMU countries) and 40 years of data, we find that countries with similar government budget positions tend to have smoother business cycles. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with smoother business cycles. We also find evidence that reduced business cycle volatility through higher fiscal convergence stimulates growth. Our empirical results are economically and statistically significant and robust. Convergence budgétaire, volatilité des cycles économiques et croissance Ce document analyse les effets de la convergence budgétaire sur la volatilité des cycles économiques et la croissance. En utilisant un échantillon de 21 pays de l’OCDE (incluant 11 pays de la zone euro) sur 40 ans, nous trouvons que les pays qui ont des positions budgétaires similaires tendent à avoir des cycles plus lisses. Cela signifie que la convergence budgétaire (sous la forme de ratios de déficit en point de PIB constamment similaires) est systématiquement associée à des cycles économiques plus lisses. Nous trouvons également qu’une volatilité des cycles économiques réduite grâce à une convergence budgétaire stimule la croissance. Nos résultats empiriques sont économiquement et statistiquement significatifs et robustes.

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File URL: http://dx.doi.org/10.1787/226475824848
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 674.

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Date of creation: 25 Feb 2009
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Handle: RePEc:oec:ecoaaa:674-en

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Keywords: business cycle volatility; fiscal convergence; economic growth; convergence budgétaire; croissance économique; volatilité des cycles économiques;

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Cited by:
  1. N. Antonakakis & G. Tondl, 2014. "Does integration and economic policy coordination promote business cycle synchronization in the EU?," Empirica, Springer, vol. 41(3), pages 541-575, August.
  2. Zsolt Darvas & Gyorgy Szapary, 2008. "Euro Area Enlargement and Euro Adoption Strategies," IEHAS Discussion Papers 0824, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Petr Rozmahel & Ladislava Grochová & Marek Litzman, 2014. "The effect of asymmetries in fiscal policy conducts on business cycle correlation in the EU," WWWforEurope Working Papers series 62, WWWforEurope.
  4. Schalck, Christophe, 2012. "Investigating heterogeneity in European fiscal behaviours," Research in Economics, Elsevier, vol. 66(4), pages 383-390.

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