Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64019
Authors: 
Virén, Matti
Year of Publication: 
2000
Series/Report no.: 
ETLA Discussion Papers, The Research Institute of the Finnish Economy (ETLA) 744
Abstract: 
This paper deals with fiscal policy coordination under the Stability and Growth Pact. In particular, it addresses the question of how fiscal policy can be coordinated within EMU, where countries still differ considerably in terms of country-specific shocks and fiscal policy multipliers. To answer this question, we carry out comparative analyses of both automatic stabilisers and policy effects. We also scrutinise the specification and forecasting uncertainty associated with different indicators of fiscal policy, especially the cyclical and structural components of government deficits. We find relatively large cross-country differences in both the cyclical effects and policy effects, which, together with considerable forecasting uncertainty, suggest that policy coordination is very difficult. On balance, we find that the effect of coordinated policies is much larger than that of uncoordinated policies. This result applies to all countries, but to small countries in particular, and seems quite robust, in terms of the treatment of the sustainability condition. We also find that there is only little evidence of similar fiscal policy patterns in the past, although in this respect the results seem to differ a great deal between the core and non-core countries and also between time periods.
Subjects: 
fiscal policy
forecasts
coordination
JEL: 
E61
Document Type: 
Working Paper

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