Time-varying cyclicality of fiscal policy: The case of the Euro area

Antonio Afonso and Francisco Tiago Carvalho

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: We assess the cyclicality of fiscal policy in the 19 Euro area countries, notably during recessions, for the period 1995–2020. We use a time-varying measure of fiscal cyclicality to describe fiscal policy developments. The results suggest that during recessions discretionary fiscal policy becomes more pro-cyclical, but the overall budget balance becomes more counter-cyclical. Hence, pursuing a Ricardian fiscal regime by more indebted countries leads to higher counter-cyclicality of fiscal policy. Government size reduces counter-cyclicality, as well as trade openness, and financial development has a positive impact on counter-cyclicality.

Keywords: Fiscal Policy; Cyclicality; Time-varying coefficient; Euro area (search for similar items in EconPapers)
JEL-codes: C23 E62 H30 H62 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s106294082200119x

DOI: 10.1016/j.najef.2022.101778

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