Automatic Stabilisation, Discretionary Policy and the Stability Pact

Francesco Saraceno ()
Additional contact information
Francesco Saraceno: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

Post-Print from HAL

Abstract: This paper describes recent trends on the efficiency of stabilisers in the European Union. Using both macro evidence on the cyclical sensitivity of budget deficit to economic activity, and micro evidence on the tax and expenditure profiles, we conclude, in agreement with the recent literature, that the importance of automatic stabilisation has decreased. After remarking that this trend is contradictory with the current economic institutions of Europe relying exclusively on automatic stabilisation for the conduct of fiscal policy, we argue that increasing flexibility, one alternative way to reduce cyclical fluctuations, does not seem a viable path. The paper concludes defending the appropriateness of discretionary fiscal policy. We argue by means of a simple model that the theoretical arguments against its use are not conclusive, and we describe a recent stream of literature, based on structural VAR models, that concludes rather robustly for the effectiveness of discretionary fiscal policy in the short and long run.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Published in Jérôme Creel; Malcolm Sawyer; Jérôme Creel. Current Thinking on Fiscal Policy, Palgrave Macmillan, pp.00 - 00, 2009, 9780230202498

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:hal:journl:hal-03397950

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().