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Fiscal policy in the European Union

Author

Listed:
  • Christos Kollias
  • Susana‐Maria Paleologou

Abstract

Purpose - The purpose of this paper is to investigate the revenue‐expenditure nexus in the case of the 15 members of the European Union. Design/methodology/approach - The paper uses a VECM framework to determine the causal ordering between these two macroeconomic aggregates. Findings - The empirical tests have yielded mixed results. The fiscal synchronisation hypothesis is supported for Denmark, Greece, Ireland, The Netherlands, Portugal and Sweden while, in the case of Austria, Belgium and Germany, the results point to the institutional separation hypothesis. Unidirectional causality from revenue to expenditure appears to be the case for Italy and Spain while the reverse causal ordering is found for Luxembourg. The findings also suggest the presence of the Buchanan‐Wagner hypothesis for Finland, France and the UK. Originality/value - The determination of the causal ordering between these two macroeconomic aggregates has important implications for fiscal policy and the concomitant determination of budgetary balances. This is particularly true for the countries that participate in the eurozone and thus fall under the provisions of the stability and growth pact.

Suggested Citation

  • Christos Kollias & Susana‐Maria Paleologou, 2006. "Fiscal policy in the European Union," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 33(2), pages 108-120, March.
    • Handle: RePEc:eme:jespps:01443580610666064
    DOI: 10.1108/01443580610666064
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    Citations

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    Cited by:

    1. Emre BULUT & Dilek ÇİL, 2024. "Asymmetric Causality Relationship Between Public Expenditures and Tax Revenues: Transition Economies Case," Sosyoekonomi Journal, Sosyoekonomi Society, issue 32(60).
    2. Golpe, Antonio A. & Sánchez-Fuentes, A. Jesus & Vides, José Carlos, 2023. "Fiscal sustainability, monetary policy and economic growth in the Euro Area: In search of the ultimate causal path," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1026-1045.

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