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Is fiscal policy in the euro area Ricardian?

Author

Listed:
  • Nikki Panjer

    (University of Groningen)

  • Leo Haan

    (De Nederlandsche Bank)

  • Jan P. A. M. Jacobs

    (University of Groningen
    CAMA
    Cirano)

Abstract

We empirically determine whether a Ricardian or a non-Ricardian regime is more plausible for the euro area, following the research strategy of Canzoneri et al. (Am Econ Rev 91:1221–1238, 2001). A Vector AutoRegressive model for the primary government balance and the government debt is estimated for the period 1980q2–2013q4. Our model uses dummy interaction terms to account for the breaks due to the introduction of the Euro Convergence Criteria (ECC) and the start of the global financial crisis, respectively. No evidence is found in favour of either regime for the pre-ECC period. In the post-ECC period, a Ricardian regime is more plausible. Some evidence points in the direction of a non-Ricardian regime for the period after the start of the financial crisis.

Suggested Citation

  • Nikki Panjer & Leo Haan & Jan P. A. M. Jacobs, 2020. "Is fiscal policy in the euro area Ricardian?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(2), pages 411-429, May.
    • Handle: RePEc:kap:empiri:v:47:y:2020:i:2:d:10.1007_s10663-019-09431-y
    DOI: 10.1007/s10663-019-09431-y
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    2. Vese Qehaja-Kekae & Driton Qehaja & Arber Hoti, 2023. "The Effect of Fiscal Deficits on Economic Growth: Evidence from Eurozone Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 3-18.
    3. António Afonso & José Alves & Serena Ionta, 2023. "The Effects of Monetary Policy Surprises and Fiscal Sustainability Regimes in the Euro Area," CESifo Working Paper Series 10558, CESifo.
    4. Staffa, Ruben Marek & von Schweinitz, Gregor, 2023. "Fiscal policy under the eyes of wary bondholders," IWH Discussion Papers 26/2023, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Fiscal policy; Euro area; Ricardian regime;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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