Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77715
Authors: 
Weichenrieder, Alfons
Zimmer, Jochen
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4255
Abstract: 
The paper uses fiscal reaction functions for a panel of euro-area countries to investigate whether euro membership has reduced the responsiveness of countries to shocks in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, such as an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from preexisting debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply.
Subjects: 
debt sustainability
fiscal reaction function
euro area
JEL: 
H62
E62
Document Type: 
Working Paper

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