Cyclical Asymmetry in Fiscal Variables

36 Pages Posted: 15 Jul 2008

Multiple version iconThere are 2 versions of this paper

Date Written: July 11, 2008

Abstract

In a stylised framework of fiscal policy determination that considers both structural targets and cyclical factors, we find significant cyclical asymmetry in the behaviour of fiscal variables in a sample of fourteen EU countries from 1970 to 2004, with budgetary balances (both overall and primary) deteriorating in contractions but not improving correspondingly in expansions. Analysis of budget components reveals that the asymmetry is due to expenditure, in particular transfers in cash. We find no evidence that the fiscal rules introduced in 1992 with the Treaty of Maastricht affected the cyclical behaviour of the variables examined. Numerical simulations show that cyclical asymmetry inflated average deficit levels, contributing significantly to the accumulation of debt.

Keywords: fiscal stabilisation, government expenditure, government debt, fiscal rules

JEL Classification: E62, H6

Suggested Citation

Balassone, Fabrizio and Francese, Maura and Zotteri, Stefania, Cyclical Asymmetry in Fiscal Variables (July 11, 2008). Bank of Italy Temi di Discussione (Working Paper) No. 671. Available at SSRN: https://ssrn.com/abstract=1160168 or http://dx.doi.org/10.2139/ssrn.1160168

Fabrizio Balassone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Maura Francese

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Stefania Zotteri

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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