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Output-volatility reducing effect of automatic stabilizers: Evidence from nine EMU member states

Hüseyin Şen and Ayşe Kaya

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: In this paper, we explore the output-volatility reducing role of automatic stabilizers in the nine EMU member states comprising Austria, Finland, France, Germany, Ireland, Italy, Portugal, the Netherlands, and Spain for the period 1995-2017. Overall, the empirical results obtained by using the Pooled Mean Group estimator proposed by Pesaran et al. (1999) suggest that automatic stabilizers deliver a significant counter-effect on output volatility measured by the real GDP per capita volatility in the short run. More specifically, output-volatility responses to automatic stabilizers by a reduction between -1.2 and -9.7 percentage points depending on the proxy measure used for automatic stabilizers. However, the output-volatility reducing effect of automatic stabilizers is statistically insignificant in the long run. The results support the view that automatic stabilizers are an important fiscal mechanism for the short-run output stabilization, but their output-volatility offsetting role is largely subject to what the proxy measures are used for automatic stabilizers.

Keywords: Automatic stabilizers; Fiscal policy; PMG estimator; EMU member states (search for similar items in EconPapers)
JEL-codes: E31 E32 E62 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eec and nep-mac
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