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Measuring time-varying fiscal cyclicality of the revenue side with a new cyclically-adjusted methodology: Does the European fiscal framework play a pivotal role?

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  • Giovanni Carnazza
  • Federica Lanterna
  • Paolo Liberati

Abstract

This study investigates the cyclicality of tax revenues in 27 European Union countries from 1995 to 2019, employing a novel methodology that adjusts each tax revenue item for the business cycle. We provide new insights into the cyclical nature of various revenue categories and introduce a unique methodological framework: using both expost and real-time approaches, our estimates show widespread pro-cyclicality. The use of a time-varying cyclicality coefficient model enables to determine that the progressive tightening of the European fiscal framework has played an important role in shaping fiscal pro-cyclicality on the revenue side, especially in the real-time approach. The latter captures the pro-cyclical bias that is otherwise corrected in ex-post estimation. The revised version of the Stability and Growth Pact appears to have preserved the core mechanisms of its predecessor. This suggests that the pro-cyclical challenges identified during the 1995–2019 period are likely to endure in the future.

Suggested Citation

  • Giovanni Carnazza & Federica Lanterna & Paolo Liberati, 2025. "Measuring time-varying fiscal cyclicality of the revenue side with a new cyclically-adjusted methodology: Does the European fiscal framework play a pivotal role?," Discussion Papers 2025/321, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2025/321
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2025-321.pdf
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    More about this item

    Keywords

    European Union; Cyclical adjustment; Fiscal (pro-)cyclicality; Tax revenues; Fiscal rules;
    All these 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
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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