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Fiscal Policy, Automatic Stabilisers and Policy Coordination in EMU

  • Matti Virén
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    This paper deals with fiscal policy coordination. In particular, it focuses on the question of how fiscal policy can be coordinated inside EMU, where countries still differ considerably in terms of cyclical behaviour and importance of country-specific shocks and well as the fiscal policy multipliers. To answer this question, we carry out comparative analyses on both automatic stabilisers and policy effects. We also scrutinise the uncertainty, which is related to different indicators of fiscal policy, as well as the forecast uncertainty in terms of the cyclical situation. We find strikingly large differences in both the cyclical effects and policy effects that together with considerable forecasting uncertainty suggest that policy coordination may be enormously difficult. Not surprisingly, we also find that there is very little evidence of fiscal policy coordiation. The main reason for this state of affairs is probably the differences in past policy behaviour among the EU and as well as OECD countries.

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    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 204.

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    Date of creation: 01 Jan 1999
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    Handle: RePEc:fer:dpaper:204
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    1. Peter Brandner & Leopold Diebalek & Helene Schuberth, 1998. "Structural Budget Deficits and Sustainability of Fiscal Positions in the European Union," Working Papers 26, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Ray C. Fair, 1977. "On Modeling the Economic Linkages among Countries," Cowles Foundation Discussion Papers 465, Cowles Foundation for Research in Economics, Yale University.
    3. Matti Virén, 1998. "Do the OECD Countries Follow the Same Fiscal Policy Rule?," Discussion Papers 186, Government Institute for Economic Research Finland (VATT).
    4. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
    5. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    6. Canzoneri, Matthew B & Minford, Patrick, 1986. "When International Policy Coordination Matters: An Empirical Analysis," CEPR Discussion Papers 119, C.E.P.R. Discussion Papers.
    7. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
    8. W. Max Corden, 1985. "On Transmission and Coordination Under Flexible Exchange Rates," NBER Chapters, in: International Economic Policy Coordination, pages 8-36 National Bureau of Economic Research, Inc.
    9. Mayes, David G. & Viren, Matti, 1998. "The Exchange Rate and Monetary Conditions in the Euro Area," Research Discussion Papers 27/1998, Bank of Finland.
    10. Tanzi, Vito & Schuknecht, Ludger, 1997. "Reconsidering the Fiscal Role of Government: The International Perspective," American Economic Review, American Economic Association, vol. 87(2), pages 164-68, May.
    11. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
    12. Erkki Koskela & Matti Virén, 1999. "Is There a Laffer Curve Between Output and Public Sector Employment?," Discussion Papers 194, Government Institute for Economic Research Finland (VATT).
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