Fiscal cyclicality and EMU

Bénétrix, Agustín S.; Lane, Philip R.

doi:10.1016/j.jimonfin.2012.11.009

Cited by 66 publications

(57 citation statements)

References 14 publications

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“…However, there was little or no national interest in adopting the appropriate counter-cyclical fiscal policies -in fact, fiscal policies became more pro-cyclical after the euro was introduced (Bénétrix & Lane 2013). Germans appeared perfectly happy to see their financial institutions lend wildly to the European periphery, even while they maintained their traditional fiscal conservatism at home.…”

Section: Inadequate Policy Responsesmentioning

confidence: 99%

Understanding the Political Economy of the Eurozone Crisis

Frieden

Walter

2017

Annu. Rev. Polit. Sci.

177

121

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The Eurozone crisis constitutes a grave challenge to European integration. This essay presents an overview of the causes of the crisis, and analyzes why has it been so difficult to resolve. It focuses on how responses to the crisis were shaped by distributive conflicts both among and within countries. On the international level, debtor and creditor countries have fought over the distribution of responsibility for the accumulated debt; countries with current account surpluses and deficits have fought over who should implement the policies necessary to reduce the current account imbalances. Within countries, interest groups have fought to shift the costs of crisis resolution away from themselves. The essay emphasizes that the Eurozone crisis shares many features of previous debt and balance-of-payments crises. However, the Eurozone's predicament is unique because it is set within a monetary union that strongly constrains the policy options available to policymakers, and vastly increases the interdependence of the euro crisis countries on each other. The outcome of the crisis has been highly unusual, because the costs of resolving the crisis have been borne almost exclusively by the debtor countries and taxpayers in the Eurozone.2

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Section: Inadequate Policy Responsesmentioning

confidence: 99%

Understanding the Political Economy of the Eurozone Crisis

Frieden

Walter

2017

Annu. Rev. Polit. Sci.

177

121

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“…Végh and Vuletin (2012) discuss the cyclical behavior of statutory tax rates, …nding acyclical tax rates on average across countries. Bénétrix and Lane (2012) discuss the possible weakening of the link between the public debt and …scal adjustments since the adoption of the Euro, and they also point out a possible additional link between the …nancial cycle and systematic …scal policy. 1 In general, results from the empirical …scal policy literature have varied widely, with results sensitive to model speci…cation, time period, timeseries assumptions, and the aggregates and countries under study.…”

Section: Introductionmentioning

confidence: 99%

A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?

Reicher

2014

Journal of Macroeconomics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. A set of estimated fiscal rules for a cross section of countries: Stabilization and consolidation through which instruments? * Terms of use: Documents in Christopher Phillip ReicherAbstract: This paper provides a set of detailed estimated fiscal reaction functions for a panel of twenty industrialized countries, and it discusses commonalities and differences with regard to systematic fiscal policies across countries. In general, the countries in the panel adjust tax revenues strongly in response to the public debt, and they adjust tax revenues and transfer payments, but, interestingly, not tax rates, strongly in response to output fluctuations. Some countries such as Germany appear to adjust government consumption and investment relatively strongly in response to the public debt, while the United States adjusts capital tax rates relatively strongly. In general, an increased emphasis in the theoretical literature on the effects of procyclical tax revenues and countercyclical transfer payments as automatic stabilizers may be warranted.Keywords: Fiscal policy, fiscal rule, deficits, taxes, government purchases, transfer payments.JEL classification: E62, E63, H20, H62. Abstract This paper provides a set of detailed estimated …scal reaction functions for a panel of twenty industrialized countries, and it discusses commonalities and di¤erences with regard to systematic …scal policies across countries. In general, the countries in the panel adjust tax revenues strongly in response to the public debt, and they adjust tax revenues and transfer payments, but, interestingly, not tax rates, strongly in response to output ‡uctuations. Some countries such as Germany appear to adjust government consumption and investment relatively strongly in response to the public debt, while the United States adjusts capital tax rates relatively strongly. In general, an increased emphasis in the theoretical literature on the e¤ects of procyclical tax revenues and countercyclical transfer payments as automatic stabilizers may be warranted. Christopher Phillip ReicherEmail: christopher.reicher@ifw-kiel.de; Telephone: +49 431 8814 300.I thank Garey Ramey, Valerie Ramey, Henning Bohn, and Roger Gordon for their helpful advice on a much earlier version of this project. All errors are mine.JEL: E62, E63, H20, H62.

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“…The empirical literature on this period has not found strong evidence for a systematically countercyclical stance of fiscal policies (Huart 2013, Bénétrix/Lane 2013. Fatas and Mihov (2009) even find a "mildly procyclical" pattern of fiscal policies which was not significantly altered by the introduction of the common currency.…”

Section: Fiscal Policies and Macroeconomic Stability In The Eurozone:mentioning

confidence: 90%

On the Logic of Fiscal Policy Coordination in a Monetary Union

Landmann

2017

Open Econ Rev

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Fiscal policies have been widely criticized for their failure to act as a stabilizing countercyclical force in the European Monetary Union (EMU) prior to the Financial Crisis of 2008, and even more so thereafter. Motivated by EMU experience, this paper lays out a parsimonious model of fiscal-monetary policy interaction between national fiscal authorities and a common central bank. It is well known that the structure of this interaction changes fundamentally when the central bank is constrained by a binding zero lower bound on the interest rate. The key result of this paper is that decentralized fiscal policies suffer from a systematic procyclical bias in a monetary union, both when the zero lower bound bites and when it does not. Whereas the existing literature on fiscal policy coordination knows "locomotive games" and "discipline games", in which fiscal policies are too tight or too loose, respectively, the analysis in this paper identifies a "stabilization game" in which coordination can play a useful role by strengthening the countercyclical thrust of fiscal policies. JEL Classification: E5, E6, F41, F42

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Fiscal cyclicality and EMU

Cited by 66 publications

References 14 publications

Understanding the Political Economy of the Eurozone Crisis

Understanding the Political Economy of the Eurozone Crisis

A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?

On the Logic of Fiscal Policy Coordination in a Monetary Union

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