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Discretionary fiscal policy in the Euro area: past, present, future

Author

Listed:
  • Francesco Caprioli

    (Bank of Italy)

  • Marzia Romanelli

    (Bank of Italy)

  • Pietro Tommasino

    (Bank of Italy)

Abstract

The depth and the length of the recent crisis prompted a more positive re-assessment of a countercyclical fiscal stance, especially in the euro area. Against this background, we look at discretionary fiscal policy in the euro area from three different perspectives. First, we provide evidence that the discretionary fiscal policy in euro-area countries has been mostly a-cyclical even if our estimates suggest that using it counter-cyclically could have been useful, particularly during the crisis. Second, focusing on the short-run � i.e. taking as given the economic and institutional constraints that currently make a significant fiscal expansion quite unrealistic in Europe � we discuss some budget-neutral proposals aimed at fostering economic growth. Finally, taking a more forward-looking perspective, we discuss the issue of the appropriate fiscal stance for the euro area as a whole, and argue that the advantages of having a coordinated approach (e.g. through a centralized fiscal capacity) can be substantial.

Suggested Citation

  • Francesco Caprioli & Marzia Romanelli & Pietro Tommasino, 2017. "Discretionary fiscal policy in the Euro area: past, present, future," Questioni di Economia e Finanza (Occasional Papers) 398, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_398_17
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2017-0398/QEF_398_17.pdf
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    References listed on IDEAS

    as
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    2. Donatella Baiardi & Paola Profeta & Riccardo Puglisi & Simona Scabrosetti, 2019. "Tax policy and economic growth: does it really matter?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 282-316, April.
    3. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, vol. 103(3), pages 141-146, May.
    4. Attinasi, Maria-Grazia & Prammer, Doris & Stähler, Nikolai & Tasso, Martino & Van Parys, Stefan, 2016. "Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries," Discussion Papers 26/2016, Deutsche Bundesbank.
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    Citations

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    Cited by:

    1. Nicoletta Batini & Alessandro Cantelmo & Giovanni Melina & Stefania Villa, 2021. "How loose, how tight? A measure of monetary and fiscal stance for the euro area," Oxford Economic Papers, Oxford University Press, vol. 73(4), pages 1536-1556.
    2. Cláudia Braz & Nicolas Carnot, 2019. "Euro Area Fiscal Policy Changes: Stylised Features of the Past Two Decades," European Economy - Discussion Papers 109, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Fabrizio Balassone & Sandro Momigliano & Marzia Romanelli & Pietro Tommasino, 2018. "Just Round the Corner? Pros, Cons, and Implementation Issues of a Fiscal Union for the Euro Area," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2018(1), pages 5-34.
    4. Cláudia Braz & Nicolas Carnot, 2019. "Euro area fiscal policy changes: stylised features of the past two decades," Working Papers w201910, Banco de Portugal, Economics and Research Department.
    5. R. Golinelli & I. Mammi & A. Musolesi, 2018. "Parameter heterogeneity, persistence and cross-sectional dependence: new insights on fiscal policy reaction functions for the Euro area," Working Papers wp1120, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Marco Committeri & Pietro Tommasino, 2018. "Managing sovereign debt restructurings in the euro zone. A note on old and current debates," Questioni di Economia e Finanza (Occasional Papers) 451, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    discretionary fiscal policy; automatic stabilizers; European Monetary Union;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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