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Discretionary fiscal policy in the Euro area: past, present, future

Author

Listed:
  • Francesco Caprioli

    () (Bank of Italy)

  • Marzia Romanelli

    () (Bank of Italy)

  • Pietro Tommasino

    () (Bank of Italy)

Abstract

The depth and the length of the recent crisis prompted a more positive re-assessment of a countercyclical fiscal stance, especially in the euro area. Against this background, we look at discretionary fiscal policy in the euro area from three different perspectives. First, we provide evidence that the discretionary fiscal policy in euro-area countries has been mostly a-cyclical even if our estimates suggest that using it counter-cyclically could have been useful, particularly during the crisis. Second, focusing on the short-run – i.e. taking as given the economic and institutional constraints that currently make a significant fiscal expansion quite unrealistic in Europe – we discuss some budget-neutral proposals aimed at fostering economic growth. Finally, taking a more forward-looking perspective, we discuss the issue of the appropriate fiscal stance for the euro area as a whole, and argue that the advantages of having a coordinated approach (e.g. through a centralized fiscal capacity) can be substantial.

Suggested Citation

  • Francesco Caprioli & Marzia Romanelli & Pietro Tommasino, 2017. "Discretionary fiscal policy in the Euro area: past, present, future," Questioni di Economia e Finanza (Occasional Papers) 398, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_398_17
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    File URL: http://www.bancaditalia.it/pubblicazioni/qef/2017-0398/QEF_398_17.pdf
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    References listed on IDEAS

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    1. repec:nbr:nberch:13342 is not listed on IDEAS
    2. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, vol. 103(3), pages 141-146, May.
    3. Donatella Baiardi & Paola Profeta & Riccardo Puglisi & Simona Scabrosetti, 2017. "Tax Policy and Economic Growth: Does It Really Matter?," CESifo Working Paper Series 6343, CESifo Group Munich.
    4. Attinasi, Maria-Grazia & Prammer, Doris & Stähler, Nikolai & Tasso, Martino & Van Parys, Stefan, 2016. "Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries," Discussion Papers 26/2016, Deutsche Bundesbank.
    5. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
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    Cited by:

    1. R. Golinelli & I. Mammi & A. Musolesi, 2018. "Parameter heterogeneity, persistence and cross-sectional dependence: new insights on fiscal policy reaction functions for the Euro area," Working Papers wp1120, Dipartimento Scienze Economiche, Universita' di Bologna.

    More about this item

    Keywords

    discretionary fiscal policy; automatic stabilizers; European Monetary Union;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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