Trade spill-overs of fiscal policy in the European Union: a panel analysis

We explore the international spill-overs from fiscal policy shocks via trade in Europe. A fiscal expansion stimulates domestic activity, which leads to more foreign exports and, hence, higher foreign output. To quantify this, we combine a panel VAR model in government spending, net taxes and GDP with a panel trade model. We find statistically significant spill-overs. Our baseline estimates imply that, on average, over the first two years a German public spending increase equal to 1% of GDP implies an average foreign exports gain of 2.2% of its annual level. The corresponding figure for an equal-size net tax reduction is 0.8%. As far as the direct effect of enhanced exports on foreign activity is concerned, the corresponding average gains from the two shocks are, respectively, 0.13% and 0.07% of annual GDP. Of course, these numbers are (substantially) smaller when the fiscal shock originates from smaller EU countries

Assessment of the fiscal stance appropriate for the euro area in 2019

On 18 June 2018, the European Fiscal Board (EFB) has published its assessment of the general orientation of fiscal policy in the euro area. The report concludes that the favourable economic outlook offers a prime opportunity to rebuild fiscal buffers. Especially euro area Member States with a high government debt-to-GDP ratio need to do more than simply accrue the budgetary benefits of the economic expansion. Lest we repeat the mistakes of the past and rob ourselves of room to manoeuvre when the next crisis hits, this is the time to move towards a somewhat restrictive orientation of fiscal policy in the euro area. It is also the time to upgrade the EU's fiscal framework and prepare a capacity for joint stabilisation for the euro area

CESifo Working Paper no. 3652

Abstract There is substantial consensus in the literature that positive uncertainty shocks predict a slowdown of economic activity. However, using U.S. data since 1950 we show that the macroeconomic response pattern to stock market volatility shocks has changed substantially over time. The negative response of GDP growth to such shocks has become smaller over time. Further, while during earlier parts of our sample both a slowdown in consumption and investment growth contribute to a reduction of GDP growth, during later parts, only the investment reaction contributes to the GDP slowdown. A variance decomposition for consumption growth shows that the contribution of stock market volatility becomes negligible as we go from earlier to later parts of the sample, while the corresponding decomposition for investment growth reveals an increase in the role of stock market volatility. JEL-Code: E200, E310, E400