Cyclicality of Fiscal Policy in the European Union

Our paper analyzes the way in which fiscal policy works across the phases of the economic cycle, more precisely it checks the pro-cyclical features of this policy. The sample we have chosen includes the EU countries, except for Cyprus and Malta, for the 1995-2014 period. To measure the pro-cyclicality and the way in which fiscal policy responds to economic, social and political stimuli we used multiple regressions, tested for time-series for each country at a time, as well as for panel data for the entire sample. We started from an a-priori premise that the developed countries lead a non-cyclical/counter-cyclical policy, whereas the developing countries have a pro-cyclical one; yet, the analysis of the fiscal policy instruments adopted during the analyzed period showed that this particular insight is not necessarily valid for all the cases. We have found that throughout the entire analyzed period, most of the countries led a pro-cyclical fiscal policy, no matter if they were developed or developing countries. The influence the policy variable has upon the fiscal policy cyclicality is a constant result across the entire study.