EU Fiscal Stance Vulnerability: Are the Old Members the Gold Members?

Kamil Dybczak and Martin Melecký

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the effect of aggregate shocks on the fiscal stance of the EU, and of its old (OMS) and new (NMS) member states over a business cycle. The fiscal stance is measured by the government deficit. To study the impact of aggregate shocks, we use impulse responses derived from a pooled structural vector autoregression model estimated on annual panel data. We find that the fiscal deficits of OMS could be vulnerable to discretionary changes in government expenditures and revenues. In contrast, the fiscal stance of NMS shows vulnerability to GDP shocks, because the increase in revenues after a positive GDP shock is often outpaced by greater expenditure increases in NMS. The estimated fiscal vulnerabilities stem from disproportionate policy responses concerning government expenditures and a lacking discipline to control pro-cyclical fiscal spending. Our findings for the EU thus support application of fiscal rules focused on government expenditure rather than other fiscal variables.

Keywords: Macroeconomic Shocks; Fiscal Stance; European Union; Panel Data Analysis; Pooled Structural Vector Autoregression Model (search for similar items in EconPapers)
JEL-codes: E37 E62 H68 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-eec and nep-mac
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Related works:
Journal Article: EU fiscal stance vulnerability: Are the old members the gold members? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:42837

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