The Impact of the EU Fiscal Framework on Economic Activity: A Quantitative Assessment
22 Pages Posted: 17 Apr 2012
Date Written: April 1, 2004
The paper by Turrini and in’t Veld focuses on the impact of the European fiscal rules on economic activity. Their investigation concerns euro-area countries and it is split into two steps. First, they provide an estimate of the fiscal outcomes that would have prevailed in the absence of the European fiscal framework. Without fiscal rules, euro-area countries would have ended up with higher primary deficits and higher debt. Secondly, these counterfactual public finances outturns are plugged into the European Commission’s econometric model to assess their effects on macroeconomic variables. The authors find that, especially when the effects of worsening in public finance variables on risk premia are taken into account, the positive GDP effects are short-lived.
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