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Maria Gabriella Briotti

13 February 2004
OCCASIONAL PAPER SERIES - No. 9
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Abstract
This paper aims to assess whether the implementation of the European Union (EU) framework of fiscal rules has been successful in promoting budgetary consolidation in EU Member States. The paper focuses on the period 1991-2002. It reviews the patterns of budgetary adjustment adopted in the 1990s in the Member States by analysing the size and composition of budget measures, while also taking into account the initial state of public finances. Moreover, the paper looks at the behaviour of fiscal policy over the business cycle, examining the link between budgetary consolidation and the cyclicality of public finances. As a closely related issue, the paper points out conditions under which the negative effects of fiscal contractions on economic activity might possibly be minimised. It then looks at the experience of fiscal consolidation in the various countries and assesses whether countries have implemented adequate budgetary adjustments. Stylised facts show that Member States implemented major budgetary adjustments in the 1990s marking clear structural breaks in the policy regimes compared with the previous decade. However, most progress was made via revenue-based adjustment, including temporary measures, with insufficient emphasis put on primary expenditure restraint. In recent years,
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
20 October 2005
OCCASIONAL PAPER SERIES - No. 38
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Abstract
The paper reviews the theoretical and empirical literature that has investigated the conditions under which a contradictionary fiscal policy is effective in reducing debt and deficit, but does not have a negative effect on growth. The issue is central to macroeconomics and policy making, given that many countries are currently facing increasing fiscal imbalances, with additional pressure coming in the medium term from population ageing. The paper concludes that the theoretical impact of fiscal policy on aggregate demand and economic activity depends largely on the conceptual framework considered and its assumptions about the world. Empirical studies based on macro-econometric model simulations find evidence that fiscal consolidations lead initially to production losses, while they can result in a higher output in the medium term. Empirical studies focusing on episodes of changes in fiscal policies provide in turn evidence that under certain circumstances austerity measures may have an expansionary impact on the economy.
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt