Discretionary Fiscal Policy: Review and Estimates for the EU

33 Pages Posted: 22 Feb 2010

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute

Date Written: February 2010

Abstract

We briefly review the theoretical and empirical consequences of discretionary fiscal policy changes, after which we provide our own estimates for the EU countries. A fiscal expansion raises output and consumption and reduces the trade balance. Moreover, the stimulating effect of higher government purchases is weaker and the trade balance reduction is larger for more open EU economies, consistent with larger leakage effects. Further direct estimates suggest that fiscal expansions in large EU economies have non-negligible consequences for economic activity in the main trading partners. This provides a rationale for the concerted fiscal expansion recently initiated by the European Commission.

JEL Classification: E62, F41, F42

Suggested Citation

Beetsma, Roel M. W. J. and Giuliodori, Massimo, Discretionary Fiscal Policy: Review and Estimates for the EU (February 2010). CESifo Working Paper Series No. 2948, Available at SSRN: https://ssrn.com/abstract=1555609 or http://dx.doi.org/10.2139/ssrn.1555609

Roel M. W. J. Beetsma (Contact Author)

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

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Tinbergen Institute ( email )

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