IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/65063.html
   My bibliography  Save this paper

Empirical study on the determinants of fiscal vulnerability: evidence for the European Union

Author

Listed:
  • Stoian, Andreea
  • Obreja Brasoveanu, Laura
  • Dumitrescu, Bogdan
  • Brasoveanu, Iulian

Abstract

The aim of this paper is to study the factors that drive fiscal vulnerability in the European Union countries. For this purpose, we employ a logit model with random effects for a balanced panel comprising of 20 countries and on annual data extracted for 2000-2012. We use as a dependent a dummy variable which takes value of 1 if fiscal policy is assessed as being vulnerable, and 0, otherwise. As explanatories, we use two distinct categories which capture the intrinsic and the exogenous sources of fiscal vulnerability. The results show that higher overall taxation and non-distortionary taxes decrease the likelihood of fiscal policy to be vulnerable, whilst the size of total and of productive government expenditures contribute to an increase in the fiscal vulnerability. Tight fiscal policy has an important contribution to decrease in the fiscal vulnerability. The responsiveness of fiscal policy through discretionary actions also is more likely to reduce fiscal vulnerability than through the automatic response of stabilizers. Improved economic conditions mitigate the risk of one country to become more fiscal vulnerable, whilst large financial sector increase the probability. Tighter control of corruption will lead to a decrease in fiscal vulnerability, while stronger rule of law contributes to growth in fiscal vulnerability.

Suggested Citation

  • Stoian, Andreea & Obreja Brasoveanu, Laura & Dumitrescu, Bogdan & Brasoveanu, Iulian, 2015. "Empirical study on the determinants of fiscal vulnerability: evidence for the European Union," MPRA Paper 65063, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65063
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/65063/1/MPRA_paper_65063.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "A Decade of Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.),Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 4, pages 97-135, Central Bank of Chile.
    2. Hallerberg, Mark & Yläoutinen, Sami, 2010. "Political Power, Fiscal Institutions and Budgetary Outcomes in Central and Eastern Europe," Journal of Public Policy, Cambridge University Press, vol. 30(1), pages 45-62, April.
    3. Stoian, Andreea & Obreja Brasoveanu, Laura & Dumitrescu, Bogdan & Brasoveanu, Iulian, 2015. "A new framework for detecting the short term fiscal vulnerability for the European Union countries," MPRA Paper 63537, University Library of Munich, Germany.
    4. Murray Petrie & Mr. Richard Hemming, 2000. "A Framework for Assessing Fiscal Vulnerability," IMF Working Papers 2000/052, International Monetary Fund.
    5. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    6. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    7. Mr. Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability: Automatic Stabilizers Work, Always and Everywhere," IMF Working Papers 2010/111, International Monetary Fund.
    8. Katia Berti & Matteo Salto & Matthieu Lequien, 2012. "An early-detection index of fiscal stress for EU countries," European Economy - Economic Papers 2008 - 2015 475, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Mr. James McHugh & Iva Petrova & Mr. Emanuele Baldacci, 2011. "Measuring Fiscal Vulnerability and Fiscal Stress: A Proposed Set of Indicators," IMF Working Papers 2011/094, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andreea Stoian & Laura Obreja Brașoveanu & Iulian Viorel Brașoveanu & Bogdan Dumitrescu, 2018. "A Framework to Assess Fiscal Vulnerability: Empirical Evidence for European Union Countries," Sustainability, MDPI, vol. 10(7), pages 1-20, July.
    2. Stoian, Andreea & Obreja Brasoveanu, Laura & Dumitrescu, Bogdan & Brasoveanu, Iulian, 2015. "A new framework for detecting the short term fiscal vulnerability for the European Union countries," MPRA Paper 63537, University Library of Munich, Germany.
    3. Magkonis, Georgios & Tsopanakis, Andreas, 2016. "The financial and fiscal stress interconnectedness: The case of G5 economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 62-69.
    4. Muhsin Ali & Karim Khan, 2020. "Volatility in Discretionary Public Spending and Economic Growth: A Cross Country Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 45-68.
    5. Magkonis, Georgios & Tsopanakis, Andreas, 2014. "Exploring the effects of financial and fiscal vulnerabilities on G7 economies: Evidence from SVAR analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 343-367.
    6. Jing Xing, 2011. "Does tax structure affect economic growth? Empirical evidence from OECD countries," Working Papers 1120, Oxford University Centre for Business Taxation.
    7. Alfò, Marco & Carbonari, Lorenzo & Trovato, Giovanni, 2023. "On the effects of taxation on growth: an empirical assessment," Macroeconomic Dynamics, Cambridge University Press, vol. 27(5), pages 1289-1318, July.
    8. Gustavo Marrero, 2010. "Tax-mix, public spending composition and growth," Journal of Economics, Springer, vol. 99(1), pages 29-51, February.
    9. Sabrina Auci & Laura Castellucci & Manuela Coromaldi, 2021. "How does public spending affect technical efficiency? Some evidence from 15 European countries," Bulletin of Economic Research, Wiley Blackwell, vol. 73(1), pages 108-130, January.
    10. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.
    11. Chiara DEL BO, 2009. "Recent advances in public investment, fiscal policy and growth," Departmental Working Papers 2009-25, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    12. Hassan, Mahmoud & Oueslati, Walid & Rousselière, Damien, 2020. "Environmental taxes, reforms and economic growth: an empirical analysis of panel data," Economic Systems, Elsevier, vol. 44(3).
    13. Günther Rehme, 2011. "Endogenous Policy And Cross‐Country Growth Empirics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 262-296, May.
    14. Ismael Sanz & Francisco J. Velazquez, 2001. "The evolution and convergence of the government expenditure composition in the OECD countries: an analysis of the functional distribution," European Economy Group Working Papers 9, European Economy Group.
    15. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March.
    16. Can, Cansin Kemal & Canöz, Ismail, 2020. "Testing Minsky’s Financial Fragility Hypothesis for Turkey’s Public Finances," Public Finance Quarterly, Corvinus University of Budapest, vol. 65(4), pages 497-514.
    17. Selahattin Imrohoroglu, 2017. "Replacing Income Taxation with Consumption Taxation in Japan," CIGS Working Paper Series 17-008E, The Canon Institute for Global Studies.
    18. Simone Salotti & Carmine Trecroci, 2012. "Even worse than you thought: The effects of government debt on investment and productivity," EcoMod2012 4200, EcoMod.
    19. repec:ebl:ecbull:v:8:y:2007:i:4:p:1-7 is not listed on IDEAS
    20. Nazila Alinaghi & W. Robert Reed, 2021. "Taxes and Economic Growth in OECD Countries: A Meta-analysis," Public Finance Review, , vol. 49(1), pages 3-40, January.
    21. Gunasinghe, Chandika & Selvanathan, E.A. & Naranpanawa, Athula & Forster, John, 2020. "The impact of fiscal shocks on real GDP and income inequality: What do Australian data say?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 250-270.

    More about this item

    Keywords

    fiscal policy; vulnerability; automatic stabilizers; discretionary; logit; panel; European Union;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:65063. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.