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Market-Induced Fiscal Discipline in Europe

Author

Listed:
  • Gianluca Cafiso

    (Università degli Studi di Catania)

  • Roberto Cellini

    (Università degli Studi di Catania)

Abstract

We discuss and test market-induced fiscal discipline, with an emphasis on the conditions that determine its emergence. The analysis is based on the effect of the public-debt interest bill on key budget variables in the European Union over the 1995–2019 period. We focus on conditions regarding threshold effects, institutional characteristics and the government’s political orientation. We assess also whether fiscal discipline, which we detect on average, emerges constantly over the entire period. Overall, a positive robust effect from interest payments to the primary budget emerges, such an effect materializes mainly through expenditure containment and it results to depend significantly on some of the conditions tested.

Suggested Citation

  • Gianluca Cafiso & Roberto Cellini, 2022. "Market-Induced Fiscal Discipline in Europe," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(2), pages 259-287, July.
    • Handle: RePEc:spr:italej:v:8:y:2022:i:2:d:10.1007_s40797-021-00182-z
    DOI: 10.1007/s40797-021-00182-z
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    More about this item

    Keywords

    Primary budget; Interest bill; Public debt; Fiscal discipline; Europe;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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