The European Debt Crisis and Fiscal Reaction Functions in Europe 2000-2012

24 Pages Posted: 28 Oct 2018

See all articles by Guido Baldi

Guido Baldi

University of Bern - Faculty of Economics and Social Sciences

Karsten Staehr

Tallinn University of Technology (TUT) - Department of Finance and Economics; Bank of Estonia

Date Written: May 15, 2013

Abstract

After the global financial crisis, some governments in the EU experienced serious debt financing problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance by assessing the fiscal conduct in the EU countries before and after the outbreak of the crisis. Fiscal reaction functions of the primary balance are estimated for different groups of EU countries using quarterly data for the pre-crisis period 2001-2008 and for the post-crisis period 2009-2012. The pre-crisis estimations reveal some differences in persistence and cyclical reaction between different groups of countries, but generally little feedback from the debt stock to the primary balance. The countries that eventually developed fiscal problems do not stand out. The post-crisis estimations show less counter-cyclicality and much more feedback from the debt stock, and these reactions are particularly pronounced for the countries with severe fiscal problems.

Keywords: Fiscal reaction function, global financial crisis, debt crisis, structural break

JEL Classification: E61, E62, H62, H63

Suggested Citation

Baldi, Guido and Staehr, Karsten, The European Debt Crisis and Fiscal Reaction Functions in Europe 2000-2012 (May 15, 2013). DIW Berlin Discussion Paper No. 1295, Available at SSRN: https://ssrn.com/abstract=3260851 or http://dx.doi.org/10.2139/ssrn.3260851

Guido Baldi (Contact Author)

University of Bern - Faculty of Economics and Social Sciences ( email )

Switzerland

Karsten Staehr

Tallinn University of Technology (TUT) - Department of Finance and Economics ( email )

Akadeemia tee 3-486
Tallinn, 12618
Estonia

HOME PAGE: http://www.ttu.ee/karsten-staehr

Bank of Estonia ( email )

Estonia Building 13
Tallinn, 15095
Estonia

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