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Mojca Roter

24 October 2023
The recent spike in inflation, unprecedented in the history of the Economic and Monetary Union (EMU), has had major consequences for all areas of the economy, including public finances. This paper aims to provide a detailed assessment of the effects of high inflation on fiscal accounts in the euro area. Relying on the wealth of expertise in the Eurosystem – within the Working Group on Public Finance – it documents spending indexation arrangements in all euro area countries. Thanks to this knowledge, the ECB’s fiscal projection platform, which is the primary evaluation tool for this study, establishes a realistic link between prices and fiscal variables. The results of this paper bring into question the conventional wisdom on the overall positive effects of inflation on fiscal accounts. Indeed, the simulations point to adverse effects from the recent inflation surge, mainly triggered by an external supply shock, on budget balances during 2022-24. This is even without taking into account the negative impact of inflation on the real economy, mainly through monetary policy tightening. The analysis also points to the important role of the denominator effect for debt-to-GDP ratios, which may fall even in the absence of benefits for the budget balance. Finally, the analysis reveals a high degree of heterogeneity across countries.
JEL Code
C3 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
13 December 2011
We investigate the public-private wage differentials in ten euro area countries (Austria, Belgium, France, Germany, Greece, Ireland, Italy, Portugal, Slovenia and Spain). To account for differences in employment characteristics between the two sectors, we focus on micro data taken from EU-SILC. The results point to a conditional pay differential in favour of the public sector that is generally higher for women, at the low tail of the wage distribution, in the Education and the Public administration sectors rather than in the Health sector. Notable differences emerge across countries, with Greece, Ireland, Italy, Portugal and Spain exhibiting higher public sector premia than other countries.
JEL Code
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
J45 : Labor and Demographic Economics→Particular Labor Markets→Public Sector Labor Markets
O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe