IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/3933.html

Fiscal Policy and Monetary Integration in Europe

Author

Listed:
  • Galí, Jordi
  • Perotti, Roberto

Abstract

A popular view among economists, policy-makers, and the media, is that the Maastricht Treaty and then Stability and Growth Pact have significantly impaired the ability of EU governments to conduct a stabilizing fiscal policy and to provide an adequate level of public infrastructure. In this Paper, we investigate this view by estimating fiscal rules for the discretionary budget deficit over the period 1980-2002, using data on EMU countries and control groups of non-EMU EU countries and other non-EU OECD countries. We do not find much support for this view. In fact, we find that discretionary fiscal policy in EMU countries has become more counter-cyclical over time, following what appears to be a trend that affects other industrialized countries as well. Similarly, we find that the decline in public investment experienced over the last decade by EMU countries is part of a worldwide trend that started well before the Maastricht Treaty was signed.

Suggested Citation

  • Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3933
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP3933
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael J. Artis & Marco Buti, 2000. "‘Close‐to‐Balance or in Surplus’: A Policy‐Maker's Guide to the Implementation of the Stability and Growth Pact," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 563-591, November.
    2. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(1), pages 147-180.
    3. Melitz, Jacques, 1997. "Some Cross-Country Evidence about Debt, Deficits and the Behaviour of Monetary and Fiscal Authorities," CEPR Discussion Papers 1653, C.E.P.R. Discussion Papers.
    4. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
    5. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    6. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, March.
    7. Marco Buti & Gabriele Giudice, 2002. "Maastricht’s Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
    8. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 168, European Central Bank.
    9. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, January-J.
    10. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 333-389.
    12. Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 77, European Central Bank.
    13. Adriana Arreaza & Bent E. Sgrensen & Oved Yosha, 1999. "Consumption Smoothing through Fiscal Policy in OECD and EU Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 59-80, National Bureau of Economic Research, Inc.
    14. F. Ballabriga & C. Martinez-Mongay, 2002. "Has EMU shifted policy?," European Economy - Economic Papers 2008 - 2015 166, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    15. Antonio Fatás & Ilian Mihov, 2002. "Fiscal Policy and EMU: Challenges of the Early Years," Chapters, in: Marco Buti & André Sapir (ed.), EMU and Economic Policy in Europe, chapter 5, Edward Elgar Publishing.
    16. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
    17. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 66-113.
    18. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
    19. James M. Poterba & Jürgen von Hagen, 1999. "Fiscal Institutions and Fiscal Performance," NBER Books, National Bureau of Economic Research, Inc, number pote99-1, January-J.
    20. Hercowitz, Z. & Strawczynski, M., 1999. "Cyclical Bias in Government Spending: Evidence from the OECD," Papers 6-99, Tel Aviv.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Backé, Peter, 2004. "Fiscal policy and inflation volatility," Working Paper Series 317, European Central Bank.
    2. Javier Andrés & Rafael Doménech, 2006. "Fiscal Rules and Macroeconomic Stability," Hacienda Pública Española / Review of Public Economics, IEF, vol. 176(1), pages 9-41, April.
    3. Fabrizio Balassone & Maura Francese, 2004. "Cyclical asymmetry in fiscal policy, debt accumulation and the Treaty of Maastricht," Temi di discussione (Economic working papers) 531, Bank of Italy, Economic Research and International Relations Area.
    4. Mauro Visaggio, 2004. "Does Stability and Growth Pact Provide an Adequate and Consistent Fiscal Rule?," Macroeconomics 0407008, University Library of Munich, Germany.
    5. Martin Larch & Matteo Salto, 2005. "Fiscal rules, inertia and discretionary fiscal policy," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1135-1146.
    6. Mauro VISAGGIO, 2010. "Does the Growth and Stability Pact Provide an Adequate and Consistent Fiscal Rule?," EcoMod2004 330600154, EcoMod.
    7. Michael J. Artis & Luca Onorante, 2007. "The Economic Importance of Fiscal Rules," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 6, pages 123-145, Palgrave Macmillan.
    8. Peter Claeys, 2006. "Policy mix and debt sustainability: evidence from fiscal policy rules," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(2), pages 89-112, June.
    9. Sapir, Andre & Aghion, Philippe & Bertola, Giuseppe & Hellwig, Martin & Pisani-Ferry, Jean & Rosati, Dariusz & Vinals, Jose & Wallace, Helen, 2004. "An Agenda for a Growing Europe: The Sapir Report," OUP Catalogue, Oxford University Press, number 9780199271498.
    10. Andres, Javier & Domenech, Rafael & Fatas, Antonio, 2008. "The stabilizing role of government size," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 571-593, February.
    11. Roland Straub & Günter Coenen, 2005. "Non-Ricardian Households and Fiscal Policy in an Estimated DSGE Model of the Euro Area," Computing in Economics and Finance 2005 102, Society for Computational Economics.
    12. Canzoneri, Matthew & Cumby, Robert & Diba, Behzad & López-Salido, David, 2011. "The role of liquid government bonds in the great transformation of American monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(3), pages 282-294, March.
    13. Mark Hallerberg & Rolf Strauch, 2002. "On the Cyclicality of Public Finances in Europe," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 29(3), pages 183-207, September.
    14. Annicchiarico, Barbara & Giammarioli, Nicola & Piergallini, Alessandro, 2012. "Budgetary policies in a DSGE model with finite horizons," Research in Economics, Elsevier, vol. 66(2), pages 111-130.
    15. Francesco Daveri & Andrea Mascotto, "undated". "The IT revolution across the U.S. states," Working Papers 226, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Leopold Diebalek & Doris Prammer, 2006. "Reform of the Stability and Growth Pact," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 78-109.
    17. Giammarioli, Nicola & Annicchiarico, Barbara & Piergallini, Alessandro, 2006. "Fiscal policy in a monetary economy with capital and finite lifetime," Working Paper Series 661, European Central Bank.
    18. Ana Lamo & Javier J. P鲥z & Ludger Schuknecht, 2013. "The cyclicality of consumption, wages and employment of the public sector in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(12), pages 1551-1569, April.
    19. Julia Darby & Jacques Melitz, 2011. "Joint Estimates of Automatic and Discretionary Fiscal Policy: the OECD 1981-2003," Working Papers 2011-14, CEPII research center.
    20. Edoardo Gaffeo & Giuliana Passamani & Roberto Tamborini, 2005. "Fiscal and monetary policy, unfortunate events, and the SGP arithmetics - Evidence from a growth-gaps model," Department of Economics Working Papers 0519, Department of Economics, University of Trento, Italia.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3933. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.