Discretion versus rule-based fiscal policy in new EU economies

Nadja Stanova

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: This paper aims to evaluate fiscal policy as a macroeconomic stabilization tool in the new EU member countries using a vector autoregression (VAR) framework. The combined results of the analysis of impulse response functions and of the aggressiveness of fiscal discretion suggest that: 1. Shocks to government expenditures and revenues yield rather minor stimulating effects on output. 2. Periods with higher output growth tend to be linked with more loosened systematic policy levels. 3. There is evidence that higher output volatility is associated with the aggressive use of fiscal policy, whilst fiscal discretion does not seem to stimulate lasting output growth. Overall, this evidence together with the increased debt financing risks of these emerging economies favors the use of rules-based fiscal policy rather than (aggressive) fiscal discretion.

Keywords: Fiscal policy; NMS; VAR model; Fiscal policy aggressiveness (search for similar items in EconPapers)
JEL-codes: E32 E61 H3 H6 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-09
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2011013

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