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The Discretionary Fiscal Effort: An Assessment of Fiscal Policy and Its Output Effect

Nicolas Carnot () and Francisco de Castro Fernández ()
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Nicolas Carnot: European Commission

Hacienda Pública Española / Review of Public Economics, 2015, vol. 215, issue 4, 63-94

Abstract: This paper presents an indicator of the fiscal stance that combines features of the bottom-up, narrative approach on the revenue side with a refined version of the top-down, traditional approach of the structural balance on the expenditure side. With these characteristics the indicator offers an image of fiscal policy that assuages the «endogeneity problems» of the structural balance and avoids the «indeterminacy» of the narrative approach. This indicator is used to shed light on EU fiscal policies and estimate the average short-term output effects of fiscal policy. Results indicate that, with exceptions, fiscal policy has been conducted in a more stop and go and pro-cyclical fashion over the past decade than suggested by traditional indicators. The fiscal multiplier is estimated at around 0.75 on average, with higher (resp. lower) multipliers associated with expenditure (resp. revenue) shocks, and higher (resp. lower) multipliers in times of declining (resp. increasing) output gaps.

Keywords: Fiscal Stance; Discretionary Fiscal Effort; Fiscal Consolidation; Fiscal Multipliers. (search for similar items in EconPapers)
JEL-codes: E62 H60 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:hpe:journl:y:2015:v:215:i:4:p:63-94