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Discretionary Fiscal Policy: Review and Estimates for the EU

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Abstract

We briefly review the theoretical and empirical consequences of discretionary fiscal policy changes, after which we provide our own estimates for the EU countries. A fiscal expansion raises output and consumption and reduces the trade balance. Moreover, the stimulating effect of higher government purchases is weaker and the trade balance reduction is larger for more open EU economies, consistent with larger leakage effects. Further direct estimates suggest that fiscal expansions in large EU economies have non-negligible consequences for economic activity in the main trading partners. This provides a rationale for the concerted fiscal expansion recently initiated by the European Commission.

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  • Roel Beetsma & Massimo Giuliodori, 2010. "Discretionary Fiscal Policy: Review and Estimates for the EU," CESifo Working Paper Series 2948, CESifo.
  • Handle: RePEc:ces:ceswps:_2948
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    Cited by:

    1. Julia Darby & Jacques Melitz, 2011. "Joint Estimates of Automatic and Discretionary Fiscal Policy: the OECD 1981-2003," Working Papers 2011-14, CEPII research center.
    2. Nicolaas Groenewold, 2012. "Australia and the GFC: Saved by Astute Fiscal Policy?," Economics Discussion / Working Papers 12-28, The University of Western Australia, Department of Economics.
    3. repec:edn:sirdps:400 is not listed on IDEAS
    4. Unal, Umut, 2015. "The Unemployment Effects of Fiscal Policy in Netherlands," MPRA Paper 81433, University Library of Munich, Germany.
    5. Steinar Holden & Victoria Sparrman, 2018. "Do Government Purchases Affect Unemployment?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 124-158, January.
    6. Montes, Gabriel Caldas & Luna, Paulo Henrique, 2018. "Discretionary fiscal policy and disagreement in expectations about fiscal variables empirical evidence from Brazil," Economic Modelling, Elsevier, vol. 73(C), pages 100-116.
    7. Raffaella Basile & Bruno Chiarini & Elisabetta Marzano, 2011. "Can we Rely upon Fiscal Policy Estimates in Countries with Unreported Production of 15 Per Cent (or more) of GDP?," CESifo Working Paper Series 3521, CESifo.
    8. Cassette, Aurélie & Creel, Jérôme & Farvaque, Etienne & Paty, Sonia, 2013. "Governments under influence: Country interactions in discretionary fiscal policy," Economic Modelling, Elsevier, vol. 30(C), pages 79-89.
    9. Martha Elena Delgado-Rojas & Hernán Rincón-Castro, 2017. "Incertidumbre acerca de la política fiscal y ciclo económico," Borradores de Economia 1008, Banco de la Republica de Colombia.
    10. Simone Maciel Cuiabano & Maxwell Opoku-Afari, 2018. "Exchange Rate Dynamics and Monetary Integration in the EAC Countries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(3), pages 267-279, September.
    11. Groenewold, Nicolaas, 2018. "Australia saved from the financial crisis by policy or by exports?," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 118-135.
    12. António Afonso & João Tovar Jalles, 2013. "Do fiscal rules matter for growth?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(1), pages 34-40, January.
    13. Pablo Burriel & Francisco de Castro & Daniel Garrote & Esther Gordo & Joan Paredes & Javier J. Pérez, 2010. "Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment," Fiscal Studies, Institute for Fiscal Studies, vol. 31(2), pages 251-285, June.
    14. Raffaella Basile & Bruno Chiarini & Giovanni Luca & Elisabetta Marzano, 2016. "Fiscal multipliers and unreported production: evidence for Italy," Empirical Economics, Springer, vol. 51(3), pages 877-896, November.
    15. Julia Darby & Jacques Melitz, 2011. "Joint estimates of automatic and discretionary fiscal policy for the OECD," Working Papers 1122, University of Strathclyde Business School, Department of Economics.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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