Dybczak, Kamil and Melecky, Martin (2012): EU Fiscal Stance Vulnerability: Are the Old Members the Gold Members?
Download (632kB) | Preview
This paper investigates the effect of aggregate shocks on the fiscal stance of the EU, and of its old (OMS) and new (NMS) member states over a business cycle. The fiscal stance is measured by the government deficit. To study the impact of aggregate shocks, we use impulse responses derived from a pooled structural vector autoregression model estimated on annual panel data. We find that the fiscal deficits of OMS could be vulnerable to discretionary changes in government expenditures and revenues. In contrast, the fiscal stance of NMS shows vulnerability to GDP shocks, because the increase in revenues after a positive GDP shock is often outpaced by greater expenditure increases in NMS. The estimated fiscal vulnerabilities stem from disproportionate policy responses concerning government expenditures and a lacking discipline to control pro-cyclical fiscal spending. Our findings for the EU thus support application of fiscal rules focused on government expenditure rather than other fiscal variables.
|Item Type:||MPRA Paper|
|Original Title:||EU Fiscal Stance Vulnerability: Are the Old Members the Gold Members?|
|Keywords:||Macroeconomic Shocks, Fiscal Stance, European Union, Panel Data Analysis, Pooled Structural Vector Autoregression Model|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
H - Public Economics > H6 - National Budget, Deficit, and Debt > H68 - Forecasts of Budgets, Deficits, and Debt
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
|Depositing User:||Martin Melecky|
|Date Deposited:||03. Dec 2012 16:23|
|Last Modified:||01. Mar 2013 22:10|
ADOLFSON, M. (2001). Monetary Policy with Incomplete Exchange Rate Pass-Through. Working Paper No. 127, Sveriges Riksbank.
BLANCHARD, O., PEROTTI, R. (2002). An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output. The Quarterly Journal of Economics, 117(4):1329-1368.
BRODA, C. (2004). Terms of Trade and Exchange Rate Regimes in Developing Countries. Journal of International Economics, 63(1):31-58.
ČIHÁK, M., FONTEYNE, W. (2009). Five Years After: European Union Membership and Macro-Financial Stability in the New Member States. IMF Workign Paper 09/68.
CHRISTIANO, L.J., EICHENBAUM, M., EVANS, C.L. (1998). Monetary Policy Shocks: What Have We Learned and to What End?, in J.B. Taylor and M. Woodford eds., Handbook of Macroeconomics, volume 1A, 65-148. (also NBER WP 6400).
CORICELLI, F., ERCOLANI, V. (2002). Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Elarged European Eunion. CEPR Discussion Paper Series on Transitin Economics No. 3672
CRESPO-CUARESMA, J., PFAFFERMAUR, M., FERNANDEZ, O., KEPPEL, C. (2011). Macroeconomic Aspects of European Integration: Fiscal Policy, Trade Integration and the European Business Cycle. FIW-Research Reports.
EUROPEAN COMMISSION (2010). Public finances in EMU. Directorate General for Economic and Financial Affairs (ECFIN), European Commission 4/2010.
FATAS, A., MIHOV, I. (2003). The Case for Restricting Fiscal Policy Discretion. Quarterly Journal of Economics 118(4): 1419-47, November.
GALI, J., PEROTTI, R. (2003). Fiscal policy and monetary integration in Europe. Economic Policy, CEPR, CES, MSH, 18(37): 533-572, October.
ILZETZKI, E., MENDOZA, E., VEGH, C. (2010). How Big (Small?) are Fiscal Multipliers? Mimeo, University of Maryland.
IMF (2009). Fiscal Rules: Anchoring Expectations for Sustainable Public Finances. IMF Report. The Internatinal Moneatry Fund. Washington, D.C.
KOPITS, G. (2004). Rules-Based Fiscal Policy in Emerging Markets: Background, Analysis and Prospects. Edited by George Kopits, Procyclicality of Financial Systems in Asia Series. Palgrave Macmillan
LANE, P. R. (2010). Some Lessons for Fiscal Policy from the Financial Crisis. IIIS Discussion Paper No. 334 (August, 2010).
LINDE, J., NESSÉN, M., AND U. SÖDERSTRÖM (2009). Monetary Policy in an Estimated Open Economy Model with Imperfect Pass-Through. International Journal of Finance and Economics, 14(4):301-333.
MARA, E. R. (2012). Determinants of Fiscal Budget Volatility in Old versus New EU Member States. Working Paper 31/2012/DE/UECE. Department of Economics, Technical University of Lisbon.
MELECKY, M., RADDATZ, C. (2011). How Do Governments Respond After Catastrophes? Natural-Disaster Shocks and the Fiscal Stance. Policy Research Working Paper Series 5564, The World Bank.
MONACELLI, T. (2005). Monetary Policy in a Low Pass-Through Environment. Journal of Money Credit and Banking, 37(6): 1047-1066.
ORBAN, G., SZAPARY, G. (2004). The Stability and Growth Pact from the Perspective of the New Member States. Journal of Policy Modeling 26, 839–864.
PESARAN, H., SMITH, R. (1995). Estimating Long Run Relationships From Dynamic Heterogeneous Panels. Journal of Econometrics, 68:79-113.
RATTO, M., ROEGER, W., IN’T VELD, J. (2006). Fiscal Policy in an Estimated Open-Economy Model for the Euro area. European Economy 226. The European Commission. ROBERTSON, D., SYMONS, J. (1992). Some Strange Properties of Panel Data Estimators. Journal of Applied Econometrics, 7(2):175-189. SPILIMBERGO, A., SYMANSKY, S., BLANCHARD, O., COTTARELLI, C. (2008). Fiscal Policy For the Crisis. IMF Staff Position Note SPN/08/01 (December 29, 2008)
TURRINI, A. (2008). Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure. European Economy 323. The European Commission.
URIBE, M., YUE, V. (2006). Country Spreads and Emerging Countries: Who Drives Whom? Journal of International Economics, 69(1):6-36.
VON HAGEN, J., HALLETT, A.H., STRAUCH, R. (2001). Budgetary Consolidation in EMU. CEPR Working Paper No. 148 (March 2001).
ZAPAL, J., SCHNEIDER, O. (2006). What are Their Words Worth?: Political Plans and Economic Pains of Fiscal Consolidations in New EU Member States, CESifo working papers, No. 1655.