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Sustainability of Public Finances in European Economies: Fiscal Policy Reactions and Market Pricing

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  • Tomasz Łyziak
  • Joanna Mackiewicz-Łyziak

Abstract

This article evaluates fiscal discipline in twenty-two member countries in the European Union. We adopt a two-dimensional approach in which we evaluate the reaction of the primary balance to public debt and the response of financial markets to fiscal variables. Our results suggest that the fiscal policy in EU is sustainable. Financial markets seem to pay attention to fiscal variables. Since the beginning of the financial crisis, both markets and governments have responded more strongly to public debt. Interestingly, the reaction of the markets to GDP per capita seems to be stronger in the high-debt economies.

Suggested Citation

  • Tomasz Łyziak & Joanna Mackiewicz-Łyziak, 2019. "Sustainability of Public Finances in European Economies: Fiscal Policy Reactions and Market Pricing," Eastern European Economics, Taylor & Francis Journals, vol. 57(1), pages 3-19, January.
    • Handle: RePEc:mes:eaeuec:v:57:y:2019:i:1:p:3-19
    DOI: 10.1080/00128775.2018.1533411
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    1. Łyziak, Tomasz & Mackiewicz-Łyziak, Joanna, 2020. "Does fiscal stance affect inflation expectations? Evidence for European economies," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 296-310.

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