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On the relationship between fiscal plans in the European Union: An empirical analysis based on real-time data

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  • Giuliodori, Massimo
  • Beetsma, Roel

Abstract

We investigate the interdependence of fiscal policies, and in particular deficits, in the European Union using an empirical analysis based on real-time fiscal data. There are many potential reasons why fiscal policies could be interdependent, such as direct externalities due to cross-border public investments, yardstick competition, tax competition and peer pressure among governments. Real-time data allow us to investigate how available information is mapped into policymakers' plans, while revised data are generally affected by reactions to unexpected developments that have taken place after the plan was made. Controlling for a large set of relevant determinants of primary cyclically adjusted deficits, we find indeed evidence of fiscal policy interdependence. However, the interdependence is rather asymmetrically distributed: the fiscal plans of the large countries affect the fiscal plans of the small countries, but not vice versa. Journal of Comparative Economics 36 (2) (2008) 221-242.

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  • Giuliodori, Massimo & Beetsma, Roel, 2008. "On the relationship between fiscal plans in the European Union: An empirical analysis based on real-time data," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 221-242, June.
    • Handle: RePEc:eee:jcecon:v:36:y:2008:i:2:p:221-242
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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