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The Crisis, Automatic Stabilisation, and the Stability Pact

Author

Listed:
  • Jérôme Creel

    (Centre de Recherche en Economie de Sciences Po, L’Observatoire français des conjonctures économiques (Paris, France). ESCP Business School (Paris, France))

  • Francesco Saraceno

    (Centre de Recherche en Economie de Sciences Po, L’Observatoire français des conjonctures économiques (Paris, France))

Abstract

This paper develops a comprehensive description of recent trends on the effectiveness of automatic stabilisers in the European Union, using both macro evidence on the cyclical sensitivity of budget deficits to economic activity and micro evidence on the tax and expenditure profiles. We conclude that there is increasing evidence of the declining importance of the automatic stabilisation. This points to a fundamental contradiction in the European Stability and Growth Pact, that relies almost exclusively on automatic stabilisation for the conduct of fiscal policy, We also argue, on the basis of past experience, that further increasing market flexibility does not seem a viable path to reduce aggregate fluctuations. The paper concludes by highlighting the complex relation between discretionary policies and automatic stabilisation. / En este trabajo se presenta una descripción completa de las tendencias recientes sobre la efi cacia de los estabilizadores automáticos en la Unión Europea, utilizando tanto datos macro acerca de la sensibilidad cíclica de los défi cits presupuestarios sobre la actividad económica, como evidencia microeconómica sobre la estructura de impuestos y gastos. Llegamos a la conclusión de que existe creciente evidencia sobre la pérdida de importancia de la estabilización automática. Esto apunta a una contradicción fundamental en el Pacto para la Estabilidad y Crecimiento Europeo, que se basa casi exclusivamente en la estabilización automática para la determinación de la política fiscal. También señalamos, en base a la evidencia empírica, que incrementar la flexibilidad del mercado no parece un camino viable para reducir las fluctuaciones a nivel agregado. El artículo concluye resaltando la compleja relación entre las políticas discrecionales y la estabilización automática.

Suggested Citation

  • Jérôme Creel & Francesco Saraceno, 2010. "The Crisis, Automatic Stabilisation, and the Stability Pact," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 48(1), pages 75-103, Junio.
  • Handle: RePEc:ief:reveye:v:48:y:2010:i:1:p:75-103
    DOI: 10.55444/2451.7321.2010.v48.n1.3871
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    File URL: https://revistas.unc.edu.ar/index.php/REyE/article/view/3871/5093
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    Citations

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    Cited by:

    1. Jérôme Creel & Maurizio Iacopetta, 2015. "Macroeconomic Policy and potential growth," Documents de Travail de l'OFCE 2015-15, Observatoire Francais des Conjonctures Economiques (OFCE).
    2. repec:spo:wpmain:info:hdl:2441/2q6hk56t1k8o6qje4l40fj5s9t is not listed on IDEAS
    3. Francesco Saraceno, 2017. "When Keynes Goes to Brussels: A New Fiscal Rule for the EMU?," Annals of the Fondazione Luigi Einaudi. An Interdisciplinary Journal of Economics, History and Political Science, Fondazione Luigi Einaudi, Torino (Italy), vol. 51(2), pages 131-157, December.
    4. Francesco Saraceno, 2016. "When Keynes goes to Brussels : a new fiscal rule for the EMU," SciencePo Working papers Main hal-03459045, HAL.
    5. repec:ilo:ilowps:488129 is not listed on IDEAS
    6. Francesco Saraceno, 2014. "High inequality and its impact on the economy [L'impact économique des fortes inégalités : problèmes et solutions]," Post-Print hal-01053897, HAL.
    7. repec:spo:wpmain:info:hdl:2441/60msq70is4953b2qsr30bh7c11 is not listed on IDEAS
    8. repec:hal:spmain:info:hdl:2441/3d1rt55ran82d86guhaponket6 is not listed on IDEAS
    9. repec:hal:spmain:info:hdl:2441/60msq70is4953b2qsr30bh7c11 is not listed on IDEAS
    10. Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2012. "The European Fiscal Compact: A Counterfactual Assessment," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 537-563.
    11. Jean-Paul Fitoussi & Francesco Saraceno, 2014. "Drivers of inequality: Past and present challenges for Europe," SciencePo Working papers Main hal-03596318, HAL.
    12. Francesco Saraceno, 2016. "When Keynes goes to Brussels : a new fiscal rule for the EMU," Working Papers hal-03459045, HAL.
    13. Saraceno, Francesco., 2015. "Challenges for the ECB in times of deflation," ILO Working Papers 994881293402676, International Labour Organization.
    14. repec:hal:spmain:info:hdl:2441/2q6hk56t1k8o6qje4l40fj5s9t is not listed on IDEAS
    15. repec:spo:wpmain:info:hdl:2441/3d1rt55ran82d86guhaponket6 is not listed on IDEAS
    16. repec:spo:wpmain:info:hdl:2441/19jos6046o8m6qe8fce98t1bmp is not listed on IDEAS
    17. Jean-Paul Fitoussi & Francesco Saraceno, 2014. "Drivers of inequality: Past and present challenges for Europe," SciencePo Working papers hal-03596318, HAL.
    18. repec:hal:spmain:info:hdl:2441/19jos6046o8m6qe8fce98t1bmp is not listed on IDEAS
    19. Francesco Saraceno, 2014. "High inequality and its impact on the economy [L'impact économique des fortes inégalités : problèmes et solutions]," SciencePo Working papers Main hal-01053897, HAL.
    20. Francesco Saraceno, 2016. "The ECB: a reluctant leading character of the EMU play," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 129-151, August.

    More about this item

    Keywords

    Automatic stabilisers; tax progressivity; unemployment benefits; discretionary fiscal policy; European fiscal institutions; Stability and Growth Pact;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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