Skip to main content
Article thumbnail
Location of Repository

Discretionary Fiscal Policies over the Cycle: New Evidence based on the ESCB Disaggregated Approach

By Luca Agnello and Jacopo Cimadomo

Abstract

This paper explores how discretionary fiscal policies on the revenue side of the government budget have reacted to economic fluctuations in European Union countries. For this purpose, it uses data on legislated revenue changes and structural indicators provided twice per year by National Central Banks of European Union countries in the ESCB framework for analysing fiscal policy. The analysis is based on the estimation of fiscal policy rules linking these measures of legislated fiscal policy changes to the output gap and other control variables. Then, baseline results are compared with regression estimates where variations of cyclically-adjusted indicators are used as proxy for discretionary fiscal policies, as conventionally proposed in the empirical literature on fiscal policy. Results suggest that, overall, legislated changes in taxes and social security contributions have responded in a strongly pro-cyclical way to the business cycle, while commonly-used cyclical-adjustment methods point to a-cyclicality. JEL Classification: E62, E65, H20cyclical sensitivity, Discretionary fiscal policies, ESCB disaggregated framework, government revenues, legislation changes, narrative approach

OAI identifier:

Suggested articles

Citations

  1. (2008). A Narrative analysis of post-war tax changes”, Unpublished paper,
  2. (2004). Boom-bust phases in asset prices and fiscal behaviour’, IMF Working paper n.54
  3. (2005). Cyclical Sensitivity Of Fiscal Policies Based On Real-Time Data”,
  4. (2004). Deficits and asset prices”, Economic Policy,
  5. (1998). Detrending and Business Cycle Facts”,
  6. Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending ”, NBER working paper series n.
  7. (2006). European Monetary Union: The Dark Sides of a Major Success”, Economic Policy,
  8. (2008). Fiscal adjustment to cyclical developments in the OECD: An empirical analysis based on real-time data”, CEPR working paper n.6692.
  9. (2002). Fiscal discipline in EMU: Rules or institutions?”, mimeo,
  10. (2003). Fiscal policy and monetary integration in
  11. (1997). Fiscal policy and saving in good times and bad times”,
  12. (2008). Fiscal Policy and the cycle in the Euro Area: The role of government revenue and expenditure”, European Economy, Economic Papers 323,
  13. (2007). Fiscal Policy in Real Time”,
  14. (2008). Fiscal policy responsiveness, persistence and discretion”, ECB working paper series n.
  15. (2005). Fiscal rules, inertia and discretionary fiscal policy”,
  16. Fiscal Stance over the Cycle: Evidence from Panel Analysis”,
  17. (2002). Has EMU Shifted Policy?”, Economic Papers of the European Commission, Directorate-General for Economic and Financial Affairs,
  18. (2002). Is the a Role for Discretionary Fiscal Policy?”, NBER working paper n.
  19. (2008). On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data”,
  20. (2007). Procyclicality or Reverse causality?”, Working paper series, Inter-american development Bank,
  21. (2004). Public Finances in EMU-2004”, European Economy No.
  22. (2006). Real-Time Determinants of Fiscal Policies in the Euro Area”,
  23. (2000). Reassessing Discretionary Fiscal Policy”,
  24. (2008). Social Spending and Automatic Stabilisers in the OECD”,
  25. (2002). Structural Balances and All That: Which Indicators to Use in Assessing Fiscal Policy”, IMF working paper n.101.
  26. (1998). The Behavior of U.S. Public Debt and Deficits”,
  27. (2003). The Case for Restricting Fiscal Policy Discretion”,
  28. (2008). The cyclical response of fiscal policies in the euro area. Why do results of empirical research differ so strongly?”, Bank of Italy, Temi di discussione n.
  29. (2009). The euro and fiscal policy”, NBER Working Papers
  30. The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.”, NBER working paper series n.
  31. (2008). Tied to the Mast? National Fiscal Rules in the European Union”,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.