Fiscal activism in the euro area and in other advanced economies: new evidence

Maria Grazia Attinasi, Alessandra Anna Palazzo and Beatrice Pierluigi

No 2344, Working Paper Series from European Central Bank

Abstract: We review the determinants of the discretionary fiscal policy action of governments in the euro area and in other advanced economies during the past 20 years. This is done by estimating fiscal reaction functions using dynamic panel techniques and country-by-country estimates. The results suggest that, on average, discretionary fiscal policy did not deliver economic stabilisation: during good economic times (positive output gaps) it has been on average pro-cyclical both in the euro area and in the other regions. However, the loosening bias during good times has been countered by the presence of efficient public institutions, higher long term interest rates and higher debt-to-GDP ratios. Overall, as a result of various counterbalancing forces, fiscal activism has not been a major feature of policy making in the euro area, nor in other advanced economies during the past 20 years. JEL Classification: E62, H6, C23

Keywords: business cycle; fiscal stance; government effectiveness; panel estimates (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac
Note: 930374
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192344

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