Cyclical Asymmetry in Fiscal Variables

24 Pages Posted: 14 Feb 2012

Multiple version iconThere are 2 versions of this paper

Date Written: March 29, 2007

Abstract

In this paper we present 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 over 1970-2004, with budgetary balances (both overall and primary) deteriorating in contractions without correspondingly improving in expansions. Analysis of budget components reveals that cyclical asymmetry comes from expenditure, in particular from transfers in cash. We find no evidence that fiscal rules introduced in 1992 affected the cyclical behaviour of fiscal variables. Numerical simulations show that cyclical asymmetry inflated average deficit levels, contributing significantly to debt accumulation.

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 (March 29, 2007). Available at SSRN: https://ssrn.com/abstract=2004465 or http://dx.doi.org/10.2139/ssrn.2004465

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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