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Cyclical asymmetry in fiscal policy, debt accumulation and the Treaty of Maastricht

Author

Listed:
  • Fabrizio Balassone

    (Banca d'Italia)

  • Maura Francese

    (Banca d'Italia)

Abstract

In this paper we present a stylised framework of fiscal policy determination that considers both structural targets and cyclical factors. Applying this framework to a sample of 16 OECD countries, we find evidence of significant asymmetry in the reaction of fiscal policy to positive and negative cyclical conditions, with budgetary balances deteriorating in contractions and not improving in expansions. This asymmetry appears to have contributed significantly to debt accumulation. We find no evidence that EU fiscal rules have reduced the ability of governments to conduct stabilisation policy between 1992 and 2000.

Suggested Citation

  • Fabrizio Balassone & Maura Francese, 2004. "Cyclical asymmetry in fiscal policy, debt accumulation and the Treaty of Maastricht," Temi di discussione (Economic working papers) 531, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_531_04
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    References listed on IDEAS

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    More about this item

    Keywords

    stabilization; fiscal policy; government debt; fiscal rules;
    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
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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