On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data

42 Pages Posted: 13 May 2008

See all articles by Massimo Giuliodori

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Date Written: February 2007

Abstract

We investigate the interdependence of fiscal policies, and in particular deficits, in the European Union using an empirical analysis based on real-time fiscal data. There are many potential reasons why fiscal policies could be interdependent, such as direct externalities due to cross-border public investments, yardstick competition, tax competition and peer pressure among governments. The advantage of using real-time data is that they better reflect the policymakers' intentions than revised data. Real-time data allow us to investigate how available information is mapped into policymakers' plans, while revised data are generally 'polluted' with ad hoc reactions to unexpected developments that have taken place after the plan was made. Controlling for a large set of relevant determinants of primary cyclically adjusted deficits, we find indeed evidence of fiscal policy interdependence. However, the interdependence is rather asymmetrically distributed: the fiscal stances of the large countries affect the fiscal stances of the small countries, but not vice versa.

Keywords: European Union, fiscal policy interdependence, monetary union, primary cyclically adjusted deficit, real-time data

JEL Classification: E62, H60

Suggested Citation

Giuliodori, Massimo and Beetsma, Roel M. W. J., On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data (February 2007). CEPR Discussion Paper No. DP6088, Available at SSRN: https://ssrn.com/abstract=1132225

Massimo Giuliodori (Contact Author)

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

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Tinbergen Institute ( email )

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Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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Tinbergen Institute ( email )

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