Cyclical asymmetry in fiscal variables

Fabrizio Balassone, Maura Francese and Stefania Zotteri ()
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Stefania Zotteri: Bank of Italy, Economic Research Department

No 671, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In a stylised framework of fiscal policy determination that considers both structural targets and cyclical factors, we find significant cyclical asymmetry in the behaviour of fiscal variables in a sample of fourteen EU countries from 1970 to 2004, with budgetary balances (both overall and primary) deteriorating in contractions but not improving correspondingly in expansions. Analysis of budget components reveals that the asymmetry is due to expenditure, in particular transfers in cash. We find no evidence that the fiscal rules introduced in 1992 with the Treaty of Maastricht affected the cyclical behaviour of the variables examined. Numerical simulations show that cyclical asymmetry inflated average deficit levels, contributing significantly to the accumulation of debt.

Keywords: fiscal stabilisation; government expenditure; government debt; fiscal rules (search for similar items in EconPapers)
JEL-codes: E62 H6 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_671_08

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