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Discretion versus rule-based fiscal policy in new EU economies

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  • STANOVA, Nadja

Abstract

This paper aims to evaluate fiscal policy as a macroeconomic stabilization tool in the new EU member countries using a vector autoregression (VAR) framework. The combined results of the analysis of impulse response functions and of the aggressiveness of fiscal discretion suggest that: 1. Shocks to government expenditures and revenues yield rather minor stimulating effects on output. 2. Periods with higher output growth tend to be linked with more loosened systematic policy levels. 3. There is evidence that higher output volatility is associated with the aggressive use of fiscal policy, whilst fiscal discretion does not seem to stimulate lasting output growth. Overall, this evidence together with the increased debt financing risks of these emerging economies favors the use of rules-based fiscal policy rather than (aggressive) fiscal discretion.

Suggested Citation

  • STANOVA, Nadja, 2011. "Discretion versus rule-based fiscal policy in new EU economies," Working Papers 2011013, University of Antwerp, Faculty of Applied Economics.
  • Handle: RePEc:ant:wpaper:2011013
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    File URL: https://repository.uantwerpen.be/docman/irua/1986c1/8c15aac6.pdf
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    Keywords

    Fiscal policy; NMS; VAR model; Fiscal policy aggressiveness;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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