FISCAL POLICY, FDI AND MACROECONOMIC STABILIZATION

Claudiu Albulescu () and Nicolae Bogdan Ianc ()
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Nicolae Bogdan Ianc: Management Department, Politehnica University of Timisoara, Timisoara, Romania, Finance Department, West University of Timisoara, Timisoara, Romania, LEO, University of Orléans, Orléans, France

Review of Economic and Business Studies, 2016, issue 18, 131-146

Abstract: The purpose of this paper is to investigate the impact of counter-cyclical fiscal policies and FDI inflows on macroeconomic stabilization in the selected Euro area countries. Performing a panel data analysis for 9 economies over the timespan 1980-2014 and, using a Pooled Mean Group estimator, it was shown that a counter-cyclical fiscal policy, associated with a lower tax burden during turbulent economic times, contributes to the reduction of output volatility. At the same time, increased FDI inflows positively influence the macroeconomic stabilization. In addition, a reduced volatility of investment inflows has a positive impact on the economic growth stabilization, but this result is sensitive to the way the tax burden is calculated. In a nutshell, the findings show that, in the long-run, authorities should resort to counter-cyclical fiscal policies and encourage FDI inflows to stabilize the economy and, thus, reduce the amplitude of business cycles.

Keywords: Euro Area; macroeconomic stabilization; fiscal burden; FDI inflows; Pooled Mean Group (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:aic:revebs:y:2016:j:18:albulescut

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