Fiscal policy implications of uncertain fiscal outcomes

Philipp Mohl and Gilles Mourre

Quarterly Report on the Euro Area (QREA), 2021, vol. 20, issue 1, 39-45

Abstract: This section analyses the impact of the uncertainty that fiscal outcomes can have on expected fiscal efforts. The findings highlight that discretionary fiscal adjustments are subject to large uncertainty, as measured ex post by the forecast errors in EU countries from 2000, even if the forecasts used are unbiased. Results from panel regressions reveal that Member States frequently do not adjust their expected fiscal effort to uncertain fiscal outcomes in the form of forecast errors. We find that Member States react only late and asymmetrically to forecast errors, relaxing the fiscal effort in case of positive surprises and leaving it unchanged in case of negative ones.

Keywords: euro area; uncertain fiscal outcomes; panel regressions; asymmetric fiscal adjustment (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0201-03

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