Constricted, Lame and Pro-Cyclical? Fiscal Policy in the Euro Area Revisited

International Journal of Sustainable Economy, Forthcoming

34 Pages Posted: 6 Jan 2010 Last revised: 2 Aug 2011

See all articles by Servaas Deroose

Servaas Deroose

European Commission

Andrea Schaechter

International Monetary Fund (IMF)

Martin Larch

European Fiscal Board

Date Written: May 1, 2009

Abstract

It is often argued that fiscal stabilisation in the euro area compares unfavourably with the US, not least because of the perceived limitations of the Stability and Growth Pact. This paper qualifies this perception by taking a closer look at fiscal policy making since the mid-1990s. It examines a number of elements which are generally overlooked or not considered in the analysis of fiscal stabilisation. In particular, on top of discretionary fiscal policy, which generally is at the core of existing studies, it also takes into account the size of automatic stabilisers. Moreover, it considers the difference between policy intentions, as formulated or perceived in real time, and actual outturns, and possible reasons for the gap between the two. On the basis of such a more specific analysis, fiscal stabilisation in the euro area appears less dire than commonly assumed. It also suggests a number of points on how to improve the track record, including by strengthening fiscal governance.

Keywords: fiscal policy, fiscal stabilisation, euro area, automatic stabilisers, output gap

JEL Classification: E61, H3, H6

Suggested Citation

Deroose, Servaas and Schaechter, Andrea and Larch, Martin, Constricted, Lame and Pro-Cyclical? Fiscal Policy in the Euro Area Revisited (May 1, 2009). International Journal of Sustainable Economy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1531579

Servaas Deroose

European Commission ( email )

Office BU1 0/201
B-1049 Brussels
Belgium
+32 2 299 4375 (Phone)
+32 2 299 3505 (Fax)

Andrea Schaechter

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Martin Larch (Contact Author)

European Fiscal Board ( email )

Belgium
0032 2 2969244 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
36
Abstract Views
365
PlumX Metrics