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Fiscal Adjustment to Cyclical Developments in the OECD: An Empirical Analysis Based on Real-Time Data

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  • Beetsma, Roel
  • Giuliodori, Massimo

Abstract

We explore how fiscal policies in the OECD have responded to unexpected information about the economy during the period 1995-2006. In particular, we first estimate standard fiscal rules using ex-ante data (i.e. forecasts). We then estimate how fiscal policy reacts to new information, especially on the business cycle. In this second step, we use various approaches in dealing with potential endogeneity and changes in data construction methodology after the ex ante data were released. All variants lead to similar results. There are marked differences between ex-ante behaviour and responses to new information, as well as between fiscal policy of the EU countries and the other OECD countries. In particular, the EU countries react in a pro-cyclical way to unexpected changes in the output gap, while the responses of the other OECD countries are a-cyclical. However, ex ante fiscal policy is a-cyclical for the EU countries and counter-cyclical for the other countries.

Suggested Citation

  • Beetsma, Roel & Giuliodori, Massimo, 2008. "Fiscal Adjustment to Cyclical Developments in the OECD: An Empirical Analysis Based on Real-Time Data," CEPR Discussion Papers 6692, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6692
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    More about this item

    Keywords

    cyclicality; EU; first-release data; Fiscal policy; OECD; real-time data;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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