Fiscal developments in the euro area beyond the crisis: some lessons drawn from fiscal reaction functions

Dufr not G. and Paul L.
Authors registered in the RePEc Author Service: Gilles Dufrénot ()

Working papers from Banque de France

Abstract: In this paper, we examine whether the fact that governments incorporate an objective of sustainability in their budgetary decisions is an element likely to increase the likelihood of a decrease in their deficit and debt ratios beyond the crisis (over the years from 2010 to 2015). We estimate a fiscal reaction function for the Euro area countries and demonstrate that the discretionary policies seem to be pro cyclical in average, thereby influencing the budget balance in the opposite direction than the automatic stabilizers. Our simulations of these rules over the next five years lead us to conclude that two groups of countries could emerge as regards their respective budgetary situations. On the one hand, some virtuous countries whose structural deficits will diminish whatever the exit crisis scenario envisaged, whereas on the other side, others will not succeed in stabilizing their national debt ratio, because their discretionary fiscal policy is less pro cyclical.

Keywords: euro zone; exit crisis scenario; fiscal policy (search for similar items in EconPapers)
JEL-codes: C23 H61 H63 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:292

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