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Fiscal policy orientation in the euro area in real-time

Author

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  • Katja Schmidt
  • Antoine Sigwalt

Abstract

This paper analyses the orientation of fiscal policy in the euro area in real-time, using a new real-time dataset including 11 euro area countries for the 1999-2019 period. We compare the cyclicality of the fiscal stance, measured as the change in the cyclically-adjusted total and primary budget balance, established during budgetary planning with their ex-post outturns. We find empirical evidence for pro-cyclical fiscal plans and a more a-cyclical behaviour of fiscal outcomes on average for euro area countries. We show hence that the tendency to run a pro-cyclical policy is already anchored in fiscal plans and not just an outcome of surprises on cyclical conditions. This result is robust to different specifications and estimation methods. We observe pro-cyclicality at budget planning especially during tightening episodes and a more a-cyclical fiscal stance during fiscal loosening. We also find that fiscal plans are pro-cyclical outside of crisis years of the Global Financial crisis and the European Debt crisis. We detect strong country heterogeneity in the orientation of fiscal policy ex-ante and ex-post in the euro area.

Suggested Citation

  • Katja Schmidt & Antoine Sigwalt, 2022. "Fiscal policy orientation in the euro area in real-time," Working papers 896, Banque de France.
    • Handle: RePEc:bfr:banfra:896
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    References listed on IDEAS

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    1. Gómez-Puig, Marta & Pieterse-Bloem, Mary & Sosvilla-Rivero, Simón, 2023. "Dynamic connectedness between credit and liquidity risks in euro area sovereign debt markets," Journal of Multinational Financial Management, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Fiscal Policy; Cyclicality; Real-Time Data; Fiscal Forecast.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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