Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153209
Authors: 
Afonso, António
Claeys, Peter
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 775
Abstract: 
The main focus of this paper is the relation between the cyclical components of total revenues and expenditures and the budget balance in France, Germany, Portugal, and Spain. We try to uncover past trends behind the development of public finances that contribute to explaining the current stance of fiscal policy. The disaggregate analysis of fiscal policy in an SVAR that mixes long and short-term constraints allows us to look into the transmission channels of fiscal policy and to derive a model-based indicator of structural balance. The main conclusions are that fiscal slippages are mainly due to reversals in tax policies, which are unmatched by expenditure adjustments. As a consequence, deficits rise when economic conditions worsen but cause a ‘ratcheting up’ in the size of government in economic booms. The Stability and Growth Pact has not eradicated these procyclical policies. Bad policies in good times also contribute to aggregate macroeconomic instability.
Subjects: 
fiscal indicator
SGP
short and long-term restrictions
structural balance
SVAR
JEL: 
E62
E65
E66
H61
H62
Document Type: 
Working Paper

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