Parameter heterogeneity, persistence and cross-sectional dependence: new insights on fiscal policy reaction functions for the Euro area

A number of novelties have emerged in the study of the discretionary fiscal policy within the Euro area during the last decade. Among the others, the availability of up-to-date information on fiscal indicators for the years following the Great Recession, the introduction of cutting-edge econometric methods, and a renewed interest about the sustainability of fiscal policy and public debt. The aim of this paper is to address the challenges posed by the estimation of the discretionary fiscal reaction function for the Euro area. We exploit recently introduced testing and estimation strategies for heterogeneous dynamic panels with cross-sectional dependence and propose a new parsimonious approach. Using real-time data over the period 1996-2016, we investigate whether the fiscal policy reaction function is still a benchmark after the Great Recession. We find evidence of strong cross-sectional dependence in the panel, and clear support to a valid cointegration relationship among the main determinants of the function. Newly added covariates, such interest rate spreads, come out to play a relevant role in explaining discretionary actions

Data for: Fiscal Devaluation and Economic Activity in the EU

Our sample covers the 27 EU countries over the years 1995 - 2014. To measure FD, we use a ratio of revenue from ESSC to revenue from VAT, as Bosca et al. (2013) proposed. We use the variable either as non-cyclically adjusted (FDit) or cyclically adjusted (Cyclical_ FDit) ratios. We filter out the cyclical component, applying EC (2014) methodology. The data come from the Eurostat and EC AMECO. We use five different dependent variables in the models: domestic value added in gross exports (VAXit). To cover the entire period under consideration, we combine the datasets from two World Input-Output Database tables (for the years 1995 – 2010 and 2010 – 2014, respectively). However, to allow comparisons with other empirical studies, we also examine the effects of FD on net exports (NXit). We take the relevant data from Eurostat. We consider also growth of GDP (GDPit), employment (EMPLit) and labour compensation per employee (WAGEit), respectively. We take the data on GDP and employment growth from Eurostat, and the data on labour costs per employee from OECD. To analyse factors that, according to the theoretical literature, may cause FD effects to differ across countries and time, we first consider membership in the Eurozone (EURO), defined as a binary variable, which assigns the value of 1 to years of membership of a given country in the monetary union and zero otherwise. Second, we take into account the trade openness of an economy (OPEN). It is measured as a sum of exports and imports in relation to GDP. The data come from Eurostat. Finally, we envisage some labour market institutions that could affect wage rigidities or labour supply elasticity. Thus, we use indices of a predominant level at which wage bargaining takes place (level) and of centralisation of wage bargaining (cwb), respectively. We take them from Visser's ICTWSS database (version 5.1 updated in September 2016.) In turn, responsiveness of employment to shocks is found to depend, in particular, on tax wedge and generosity of unemployment benefits. As a measure of generosity of unemployment benefits we use net replacement rates for: (i) single workers (NRR_single) and (ii) couples with a single earner and with two children (NRR_couple), earning an average salary in the economy. There is no single source of data on net unemployment replacement rates covering all EU countries for the entire period considered. Thus, we combine the Vliet and Caminada database (Version 1.0 updated in January 2012) that covers the period 1995-2009 and the OECD Tax and Benefit database including data from 2000 onwards. A list of the additional explanatory variables includes cyclically adjusted primary balance (CAPBit), output gap (Output gapit), nominal effective exchange rate (NEERit) and unemployment rate (Unempit). We take the data for the first two variables from EC AMECO. The data for the remaining two variables come from Eurostat.THIS DATASET IS ARCHIVED AT DANS/EASY, BUT NOT ACCESSIBLE HERE. TO VIEW A LIST OF FILES AND ACCESS THE FILES IN THIS DATASET CLICK ON THE DOI-LINK ABOV

The impacts of spatially targeted programmes: evidence from Guangdong

Spatially targeted policies have been a crucial component of the development strategy pursued by the Chinese government. This paper provides novel empirical evidence in the debate on place-based policy by testing whether the presence of economic development zones is associated with higher values of industrial output and their impact is heterogeneous across territories in the counties/districts in Guangdong province during the period 2000–14. The results show that the level of industrial output is positively correlated with the presence of economic development zones and offer support to the idea that place-based policies have heterogeneous effects across territories