Euro area inflation differentials: the role of fiscal policies revisited

Cristina Checherita-Westphal (), Nadine Leiner-Killinger () and Teresa Schildmann ()
Additional contact information
Cristina Checherita-Westphal: ECB
Nadine Leiner-Killinger: ECB
Teresa Schildmann: DIW Berlin
Authors registered in the RePEc Author Service: Cristina Checherita Westphal

Empirical Economics, 2025, vol. 68, issue 2, No 13, 803-854

Abstract: Abstract This paper provides a comprehensive empirical analysis of the role of discretionary fiscal policy for inflation differentials across the 19 euro area countries over the period 1999–2019. The results confirm existing (older) literature that it is difficult to find robust evidence of the fiscal policy stance or impulse impacting directly on inflation differentials. We do find, however, support for an indirect effect of discretionary fiscal policy on inflation differentials working through the output gap channel. There is also some evidence that fiscal policy may be especially potent in influencing inflation differentials—with fiscal tightening cooling (and fiscal expansion increasing) inflation pressures—when the economy is above its potential. Finally, going from the overall fiscal stance or impulse to individual fiscal instruments, we find that value added tax rate changes and public wage growth are statistically significant determinants of inflation differentials in our sample.

Keywords: Fiscal policy; Inflation differentials; Tax policy; Public wages (search for similar items in EconPapers)
JEL-codes: E31 E62 E63 F45 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00181-024-02652-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Euro Area inflation differentials: the role of fiscal policies revisited (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:68:y:2025:i:2:d:10.1007_s00181-024-02652-6

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-024-02652-6

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().