Euro area time-varying cyclicality of fiscal policy

Antonio Afonso and Francisco Carvalho

No 2021/0202, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We assess the cyclicality of fiscal policy in the 19 Euro area countries, notably during recessions, for the period 1995-2020. We use a time-varying measure of fiscal cyclicality to describe fiscal policy developments. The results suggest that during recessions discretionary fiscal policy becomes more pro-cyclical, but the overall budget balance becomes more counter-cyclical. Hence, pursuing a Ricardian fiscal regime by more indebted countries leads to higher counter-cyclicality of fiscal policy. Government size reduces counter-cyclicality, as well as trade openness, and financial development has a positive impact on counter-cyclicality.

Keywords: Fiscal Policy; Cyclicality; Time-varying coefficient; Euro area. (search for similar items in EconPapers)
JEL-codes: C23 E62 H30 H62 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp02022021

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