Membership in the Euro area and fiscal sustainability. Analysis through panel fiscal reaction functions
Piotr Ciżkowicz (),
Andrzej Rzońca and
Rafał Trzeciakowski ()
MPRA Paper from University Library of Munich, Germany
We estimate various panel fiscal reaction functions, including those of the main categories of general government revenue and expenditure for 12 Euro area member states over the 1970-2013 period. We find that in the peripheral countries where sovereign bond yields decreased sharply in the years 1996-2007, fiscal stance ceased to respond to sovereign debt accumulation. This was due to lack of sufficient adjustment in government non-investment expenditure and direct taxes. In contrast, in the core member states ,which did not benefit from yields’ convergence related to the Euro area establishment, responsiveness of fiscal stance to sovereign debt increased during 1996-2007. It was achieved mainly through pronounced adjustments in government non-investment expenditure. Our findings are in accordance with predictions of theoretical model by Aguiar et al. (2014) and are robust to various changes in modelling approach.
Keywords: fiscal reaction function; sovereign bond yields’ convergence; fiscal adjustment composition (search for similar items in EconPapers)
JEL-codes: C23 E62 F34 H63 (search for similar items in EconPapers)
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Journal Article: Windfall of Low Interest Payments and Fiscal Sustainability in the Euro Area: Analysis through Panel Fiscal Reaction Functions (2015)
Working Paper: Membership in the Euro area and fiscal sustainability - Analysis through panel fiscal reaction functions (2015)
Working Paper: Membership in the Euro area and fiscal sustainability. Analysis through panel fiscal reaction functions (2015)
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