What Determines Fiscal Balances? An Empirical Investigation in Determinants of Changes in OECD Budget Balances

42 Pages Posted: 10 Jan 2005

See all articles by Mika Tujula

Mika Tujula

European Central Bank (ECB)

Guido Wolswijk

European Central Bank (ECB)

Date Written: December 2004

Abstract

Fiscal balances have deteriorated quickly in recent years, bringing back to the foreground the question what factors help explain such sharp changes. This paper takes a broad perspective at the issue regarding countries included, the range of explanatory variables tried, and the time-span. The empirical analysis shows that changes in budget balances are affected by debt growth, macroeconomic developments and political factors. In particular, we find that the run-up to EMU induced additional consolidation in Europe and that budget balances deteriorate markedly in election years. Asset prices also may affect budgets, but the impact remains limited in normal times.

Keywords: Fiscal policy, asset prices, economic growth, budget balance, stability and growth pact

JEL Classification: E61, E62, H61, H62

Suggested Citation

Tujula, Mika and Wolswijk, Guido, What Determines Fiscal Balances? An Empirical Investigation in Determinants of Changes in OECD Budget Balances (December 2004). Available at SSRN: https://ssrn.com/abstract=631669 or http://dx.doi.org/10.2139/ssrn.631669

Mika Tujula (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Guido Wolswijk

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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