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Fiscal policy implications of uncertain fiscal outcomes

Author

Listed:
  • Philipp Mohl
  • Gilles Mourre

Abstract

This section analyses the impact of the uncertainty that fiscal outcomes can have on expected fiscal efforts. The findings highlight that discretionary fiscal adjustments are subject to large uncertainty, as measured ex post by the forecast errors in EU countries from 2000, even if the forecasts used are unbiased. Results from panel regressions reveal that Member States frequently do not adjust their expected fiscal effort to uncertain fiscal outcomes in the form of forecast errors. We find that Member States react only late and asymmetrically to forecast errors, relaxing the fiscal effort in case of positive surprises and leaving it unchanged in case of negative ones.

Suggested Citation

  • Philipp Mohl & Gilles Mourre, 2021. "Fiscal policy implications of uncertain fiscal outcomes," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 20(1), pages 39-45, February.
    • Handle: RePEc:euf:qreuro:0201-03
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