Discretionary Fiscal Policy in the Euro Area: Past, Present and Future

31 Pages Posted: 17 Nov 2017

Date Written: October 18, 2017

Abstract

The depth and the length of the recent crisis prompted a more positive re-assessment of a countercyclical fiscal stance, especially in the euro area. Against this background, we look at discretionary fiscal policy in the euro area from three different perspectives. First, we provide evidence that the discretionary fiscal policy in euro-area countries has been mostly acyclical even if our estimates suggest that using it counter-cyclically could have been useful, particularly during the crisis. Second, focusing on the short-run – i.e. taking as given the economic and institutional constraints that currently make a significant fiscal expansion quite unrealistic in Europe – we discuss some budget-neutral proposals aimed at fostering economic growth. Finally, taking a more forward-looking perspective, we discuss the issue of the appropriate fiscal stance for the euro area as a whole, and argue that the advantages of having a coordinated approach (e.g. through a centralized fiscal capacity) can be substantial.

Keywords: Discretionary Fiscal Policy, Automatic Stabilizers, European Monetary Union

JEL Classification: E62, H87

Suggested Citation

Caprioli, Francesco and Romanelli, Marzia and Tommasino, Pietro, Discretionary Fiscal Policy in the Euro Area: Past, Present and Future (October 18, 2017). Bank of Italy Occasional Paper No. 398. Available at SSRN: https://ssrn.com/abstract=3072358 or http://dx.doi.org/10.2139/ssrn.3072358

Francesco Caprioli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Marzia Romanelli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Pietro Tommasino (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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