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Fiscal policy in Europe: how effective are automatic stabilisers?

  • Anne Brunila
  • Marco Buti
  • Jan in 't Veld

It is largely recognised that fiscal policy will have larger responsibilities for cyclical stabilisation in EMU given the loss of the monetary instrument. At the same time, the EMU's budgetary framework emphasises the need to rely on automatic fiscal stabilisers, rather than active policies in cushioning the business cycle. We show that automatic stabilisers are relatively powerful in the event of shocks to private consumption, but less so in the case of shocks to private investment and exports. In the case of supply side shocks, the automatic stabilisers are largely ineffective, but this may actually be a good thing to the extent that supply-side disturbances call for structural adjustment rather than cyclical stabilisation..

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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers 2008 - 2015 with number 177.

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Length: 32 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:euf:ecopap:0177
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