Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU

Antonio Afonso and Luís Martins

No 2014/12, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: This paper provides new insights about the existence of expansionary fiscal consolidations in the Economic and Monetary Union, using annual panel data for 14 European Union countries over the period 1970-2012. Different measures for assessing fiscal consolidations based on the changes in the cyclically adjusted primary balance were calculated. A similar ad-hoc approach was used to compute monetary expansions, in order to include them in the assessment of non-Keynesian effects for different budgetary components. Panel Fixed Effects estimations for private consumption show that, in some cases, when fiscal consolidations are coupled with monetary expansions, the traditional Keynesian signals are reversed in the cases of general government final consumption expenditure, social transfers and taxes. Keynesian effects prevail when fiscal consolidations are not matched by monetary easing. Panel probit estimations suggest that longer and expenditure-based consolidations contribute positively for its success, whilst the opposite is the case for tax-based ones.

Keywords: fiscal consolidation; monetary expansion non-Keynesian effects; panel data; probit (search for similar items in EconPapers)
JEL-codes: C23 E21 E5 E62 H5 H62 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-mac, nep-mon and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://depeco.iseg.ulisboa.pt/wp/wp122014.pdf (application/pdf)

Related works:
Journal Article: Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU (2016)
Working Paper: Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU (2016)
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:ise:isegwp:wp122014

Access Statistics for this paper

More papers in Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa Department of Economics, ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL.
Bibliographic data for series maintained by Vitor Escaria ().