Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections

Roberto Golinelli and Sandro Momigliano

No 609, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We examine the impact of four factors on the fiscal policies of the euro-area countries over the last two decades: the state of public finances, the European fiscal rules, cyclical conditions and general elections. We rely on information actually available to policy-makers at the time of budgeting in constructing our explanatory variables. Our estimates indicate that policies have reacted to the state of public finances in a stabilizing manner. The European rules have significantly affected the behaviour of countries with excessive deficits. Apart from these cases, the rules appear to have reaffirmed existing preferences. We find a relatively large symmetrical counter-cyclical reaction of fiscal policy and strong evidence of a political budget cycle. The electoral manipulation of fiscal policy, however, occurs only if the macroeconomic context is favourable.

Keywords: fiscal policy; real-time information; euro-area countries; stabilisation policies; fiscal rules; political budget cycle (search for similar items in EconPapers)
JEL-codes: D72 E61 E62 H60 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_609_06

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