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Socio-economic development and fiscal policy: lessons from the cohesion countries for the new member states

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  • Mehrotra, Aaron N.
  • Peltonen, Tuomas A.

Abstract

This paper examines the link between socio-economic development and fiscal policy. We introduce an indicator for socio-economic development (SEDI) and investigate its relationship with different fiscal variables, using data for the cohesion countries, namely Greece, Portugal, Spain and Ireland for 1980-1999. We find that an improvement in the net lending position of the government, as well as a fall in the level of public debt, would be beneficial for socio-economic development in the medium term. Furthermore, fiscal consolidation is found to be more relevant for promoting socio-economic development in the cohesion countries than in the other EU-15 Member States. Our results provide support for incentives to curb spending, such as the fiscal criteria of the Maastricht Treaty or the Stability and Growth Pact. JEL Classification: H6, H5, I0

Suggested Citation

  • Mehrotra, Aaron N. & Peltonen, Tuomas A., 2005. "Socio-economic development and fiscal policy: lessons from the cohesion countries for the new member states," Working Paper Series 467, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2005467
    Note: 355041
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp467.pdf
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    Cited by:

    1. Ram Sharan Kharel Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 24(1), pages 1-15, April.
    2. Ram Sharan Kharel Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB Working Paper 09/2012, Nepal Rastra Bank, Research Department.
    3. António Afonso & Sebastian Hauptmeier, 2009. "Public Debt and Economic Growth: a Granger Causality Panel Data Approach," Working Papers Department of Economics 2009/24, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

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    More about this item

    Keywords

    EU enlargement; Fiscal consolidation; socio-economic development; Stability and Growth Pact;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I0 - Health, Education, and Welfare - - General

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