Real-Time Determinants of Fiscal Policies in the Euro Area: Fiscal Rules, Cyclical Conditions and Elections

55 Pages Posted: 4 Jan 2007

See all articles by Roberto Golinelli

Roberto Golinelli

University of Bologna - Department of Economics

Sandro Momigliano

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

We examine the impact of four factors on the fiscal policies of the euro-area countries over the last two decades: the state of public finances, the European fiscal rules, cyclical conditions and general elections. We rely on information actually available to policy-makers at the time of budgeting in constructing our explanatory variables. Our estimates indicate that policies have reacted to the state of public finances in a stabilizing manner. The European rules have significantly affected the behaviour of countries with excessive deficits. Apart from these cases, the rules appear to have reaffirmed existing preferences. We find a relatively large symmetrical counter-cyclical reaction of fiscal policy and strong evidence of a political budget cycle. The electoral manipulation of fiscal policy, however, occurs only if the macroeconomic context is favourable.

Keywords: fiscal policy, real-time information, euro-area countries, stabilisation policies, fiscal rules, political budget cycle

JEL Classification: E61, D72, E62, H60

Suggested Citation

Golinelli, Roberto and Momigliano, Sandro, Real-Time Determinants of Fiscal Policies in the Euro Area: Fiscal Rules, Cyclical Conditions and Elections (December 2006). Bank of Italy Economic Research Paper No. 609, Available at SSRN: https://ssrn.com/abstract=954914 or http://dx.doi.org/10.2139/ssrn.954914

Roberto Golinelli

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 209 2638 (Phone)
+39 051 209 2664 (Fax)

Sandro Momigliano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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