Time-varying cyclicality of fiscal policy: The case of the Euro area |
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| Institution: | 1. ISEG – Lisbon School of Economics and Management, Universidade de Lisboa, REM – Research in Economics and Mathematics, UECE – Research Unit on Complexity and Economics, Portugal;2. ISEG – Lisbon School of Economics and Management), Universidade de Lisboa, Rua do Quelhas 6, 1200-781 Lisboa, Portugal;2. University of Rome Tor Vergata, Dipartimento di Economia e Finanza, Via Columbia 2, 00133 Roma, Italy;4. Università Politecnica delle Marche, School of Business Giorgio Fuà, Money and Finance Research Group (MoFiR), Piazza Martelli 8, Ancona, Italy;1. ISEG – Lisbon School of Economics and Management, Universidade de Lisboa, REM – Research in Economics and Mathematics, UECE, UECE – Research Unit on Complexity and Economics is supported by Fundação para a Ciência e a Tecnologia, Portugal;2. Univ. Lille, CNRS, UMR 9221 – LEM, F-59000 Lille, France;3. Instituto Superior de Economia e Gestão (ISEG), Universidade de Lisboa, Rua do Quelhas 6, 1200-781 Lisboa, Portugal;4. Research in Economics and Mathematics (REM) and Research Unit on Complexity and Economics (UECE), ISEG, Universidade de Lisboa, Rua Miguel Lupi 20, 1249-078 Lisbon, Portugal;5. Economics for Policy, Nova School of Business and Economics, Universidade Nova de Lisboa, Rua da Holanda 1, 2775-405 Carcavelos, Portugal;6. IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France;7. Cracow University of Economics, Poland;1. Catholic University of Valencia, Faculty of Economics and Business, 34 Calle Corona, E-46003 Valencia, Spain;2. University of Valencia, INTECO Joint Research Unit, Department of Applied Economics II, PO Box 22.006, E-46071 Valencia, Spain;1. University of Groningen, The Netherlands;2. De Nederlandsche Bank, The Netherlands;3. CESifo, Munich, Germany |
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| 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. |
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| Keywords: | Fiscal Policy Cyclicality Time-varying coefficient Euro area |
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