EU Fiscal Stance Vulnerability: Are the Old Members the Gold Members?
AbstractThis paper investigates the effect of aggregate shocks on the fiscal stance of the EU, and of its old (OMS) and new (NMS) member states over a business cycle. The fiscal stance is measured by the government deficit. To study the impact of aggregate shocks, we use impulse responses derived from a pooled structural vector autoregression model estimated on annual panel data. We find that the fiscal deficits of OMS could be vulnerable to discretionary changes in government expenditures and revenues. In contrast, the fiscal stance of NMS shows vulnerability to GDP shocks, because the increase in revenues after a positive GDP shock is often outpaced by greater expenditure increases in NMS. The estimated fiscal vulnerabilities stem from disproportionate policy responses concerning government expenditures and a lacking discipline to control pro-cyclical fiscal spending. Our findings for the EU thus support application of fiscal rules focused on government expenditure rather than other fiscal variables.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42837.
Date of creation: Nov 2012
Date of revision:
Macroeconomic Shocks; Fiscal Stance; European Union; Panel Data Analysis; Pooled Structural Vector Autoregression Model;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-10 (All new papers)
- NEP-EEC-2012-12-10 (European Economics)
- NEP-MAC-2012-12-10 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jesper Lindé & Marianne Nessén & Ulf Söderström, 2009.
"Monetary policy in an estimated open-economy model with imperfect pass-through,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 14(4), pages 301-333.
- Jesper Lindé & Marianne Nessén & Ulf Söderström, 2004. "Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through," Working Papers 263, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Lindé, Jesper & Nessén, Marianne & Söderström, Ulf, 2004. "Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through," Working Paper Series 167, Sveriges Riksbank (Central Bank of Sweden).
- Lindé, Jesper & Nessen, Marianne & Söderström, Ulf, 2004. "Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through," CEPR Discussion Papers 4531, C.E.P.R. Discussion Papers.
- Pesaran, M.H. & Smith, R., 1992.
"Estimating Long-Run Relationships From Dynamic Heterogeneous Panels,"
Cambridge Working Papers in Economics
9215, Faculty of Economics, University of Cambridge.
- 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.
- Uribe, Martin & Yue, Vivian Z., 2006.
"Country spreads and emerging countries: Who drives whom?,"
Journal of International Economics,
Elsevier, vol. 69(1), pages 6-36, June.
- Martin Uribe & Vivian Yue, 2004. "Country spreads and emerging countries: who drives whom?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
- Martin Uribe & Vivian Z. Yue, 2003. "Country Spreads and Emerging Countries: Who Drives Whom?," NBER Working Papers 10018, National Bureau of Economic Research, Inc.
- Donald Robertson & James Symons, 1991.
"Some Strange Properties of Panel Data Estimators,"
CEP Discussion Papers
dp0044, Centre for Economic Performance, LSE.
- Ondřej Schneider & Jan Zápal, 2006.
"What Are Their Words Worth? Political Plans And Economic Pains Of Fiscal Consolidations In New EU Member States,"
Working Papers IES
2006/13, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2006.
- Jan Zápal & Ondrej Schneider, 2006. "What are their Words Worth? Political Plans and Economic Pains of Fiscal Consolidations in New EU Member States," CESifo Working Paper Series 1655, CESifo Group Munich.
- Jesús Crespo-Cuaresma & Michael Pfaffermayr & Octavio Fernández Amador & Catherine Keppel, 2011. "Macroeconomic Aspects of European Integration: Fiscal Policy, Trade Integration and the European Business Cycle," FIW Research Reports series III-004, FIW.
- Coricelli, Fabrizio & Ercolani, Valerio, 2002. "Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union," CEPR Discussion Papers 3672, C.E.P.R. Discussion Papers.
- Orban, Gabor & Szapary, Gyorgy, 2004.
"The Stability and Growth Pact from the perspective of the new member states,"
Journal of Policy Modeling,
Elsevier, vol. 26(7), pages 839-864, October.
- Gábor Orbán & György Szapáry, 2004. "The Stability and Growth Pact from the Perspective of the New Member States," MNB Working Papers 2004/4, Magyar Nemzeti Bank (the central bank of Hungary).
- Gábor Orbán & György Szapáry, 2004. "The Stability and Growth Pact from the Perspective Of the New Member States," William Davidson Institute Working Papers Series 2004-709, William Davidson Institute at the University of Michigan.
- Melecky, Martin & Raddatz, Claudio, 2011. "How do governments respond after catastrophes ? natural-disaster shocks and the fiscal stance," Policy Research Working Paper Series 5564, The World Bank.
- Fatás, Antonio & Mihov, Ilian, 2002.
"The Case for Restricting Fiscal Policy Discretion,"
CEPR Discussion Papers
3277, C.E.P.R. Discussion Papers.
- Marco Ratto & Werner Roeger, 2005. "An estimated open-economy model for the EURO area," Computing in Economics and Finance 2005 84, Society for Computational Economics.
- Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
- Eugenia-Ramona Mara, 2012.
"Determinants of fiscal budget volatility in old versus new EU member states,"
2012/31, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
- Mara, Eugenia-Ramona, 2012. "Determinants of fiscal budget volatility in old versus new EU member states," MPRA Paper 42555, University Library of Munich, Germany.
- Martin CihÃ¡k & Wim Fonteyne, 2009. "Five Years After: European Union Membership and Macro-Financial Stability in the New Member States," IMF Working Papers 09/68, International Monetary Fund.
- Ratto Marco & Roeger Werner & Veld Jan, 2006.
"Fiscal Policy in an estimated open-economy model for the EURO area,"
Computing in Economics and Finance 2006
43, Society for Computational Economics.
- Marco Ratto & Werner Roeger & Jan in't Veld, 2007. "Fiscal policy in an estimated open-economy model for the Euro area," European Economy - Economic Papers 266, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Alessandro Turrini, 2008. "Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure," European Economy - Economic Papers 323, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.