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The significance of fiscal space in Europe’s response to the crisis

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  • Bartha, Zoltán
  • Sáfrányné Gubik, Andrea

Abstract

The textbook response to deteriorating economic performance is monetary easing, the lowering of official interest rates. When the financial and economic crises hit Europe in 2008, however, monetary policy had very little room in most European countries, as the central bank interest rates were already pretty low. Fiscal policy instruments had to be used therefore, a branch of economic policy that was believed to be dated by many mainstream economists. In contrast to their interest rate conditions, the European countries formed a quite heterogeneous group in regard to their fiscal space: some had more because of balanced budgets and relatively low national debt ratios; others had a lot less. The paper analyses the responses given by 30 European countries to the crisis, and combines the effects with the pre-2008 fiscal characteristics. It identifies some clusters based on their performance and on their major fiscal indicators before and after the crisis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40346.

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Date of creation: 2012
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Handle: RePEc:pra:mprapa:40346

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Keywords: fiscal space; European economies;

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  1. Alan J. Auerbach & William G. Gale, 2009. "Activist Fiscal Policy to Stabilize Economic Activity," NBER Working Papers 15407, National Bureau of Economic Research, Inc.
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