Fiscal policy events and interest rate swap spreads: evidence from the EU

In this paper we assess the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in the course of 2002 produced a reaction in the long-term bond segment of the capital markets. Firstly, we identify the fiscal policy events and qualitatively assess the views of capital market participants. Secondly, we estimate the impact of these fiscal events on the interest rate swap spreads, which is our measure for the risk premium. According to our results the reaction of swap spreads, where it turned out to be significant, has been mostly around five basis points or less. JEL Classification: C22, G15, H30fiscal policy events, interest rate swap spreads, Stability and Growth Pact

Tumbling giant: Germany's experience with the Maastricht fiscal criteria

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The design of fiscal rules and forms of governance in European Union countries

This paper uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU 15 member states. Empirical evidence for the time period 1985-2004 suggests that the centralisation of budgeting procedures restrains public debt. In countries with one-party governments or coalition governments where parties are closely aligned and where political competition among them is low, this is achieved by the delegation of decision-making power to the minister of finance. Fiscal contracts that require countries to set multi-year targets and that reinforce those targets increase fiscal discipline in countries with ideologically dispersed coalitions and where parties regularly compete against each other

Public finances and long-term growth in Europe - evidence from a panel data analysis

In Lisbon the European Council proclaimed a European growth strategy. It considers an average economic growth rate of around 3 percent as a realistic prospect for the coming years and assigns public finances an important role in the process of achieving this goal. This paper addresses the question whether we can find empirical evidence for European countries that public finance reform affects trend growth. Focusing on time series patterns, we investigate whether there have been persistent shifts or trends in economic growth and fiscal variables over the last 40 years. In addition, we estimate a distributed lag model, which 1) indicates that government consumption and transfers negatively affect growth rates of GDP per capita over the business cycle, while public investment has a positive impact, and 2) provides robust evidence that distortionary taxation affects growth in the medium-term through its impact on the accumulation of private physical capital. JEL Classification: C22, C23, H11, O11Europe, long-term growth, public finance

Public debt and long-term interest rates: the case of Germany, Italy and the USA

The debate on the sustainability of public finances is closely related to the analysis of the financial and macroeconomic consequences of government debt accumulation. Focusing on the USA, Germany and Italy over the 1983-2003 period, the central issue addressed in this paper is how the accumulation of government debt affects long-term interest rates, both nationally and across borders. The analysis is based on a small, multivariate econometric model, which allows us to disentangle the more permanent and transitory components of interest rate developments. Empirical evidence shows that in all cases a more sustained debt accumulation leads at least temporarily to higher long-term interest rates. This transitory impact also spills-over into other countries, mainly from the US to the two European countries. JEL Classification: E6, H63cointegration, Common Trends, long-term interest rates, public debt

Budgetary Forecasts in Europe – The Track Record of Stability and Convergence Programmes

We analyse the performance of budgetary and growth forecasts of all stability and convergence programmes submitted by EU member states over the last decade. Differences emerge for the bias in budgetary projections across countries. As a second step we explore whether economic, political and institutional factors can explain this pattern. Our analysis indicates that the cyclical position and the form of fiscal governance are major determinants of forecast biases. Projected changes in the budgetary position are mainly affected by the cycle, the need of convergence before EMU and by electoral cycles.Fiscal forecasting; forecast evaluation; budget processes; Stability and Growth Pact

The design of fiscal rules and forms of governance in European Union countries

This paper uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU 15 member states. Empirical evidence for the time period 1985-2004 suggests that the centralisation of budgeting procedures restrains public debt. In countries with one-party governments or coalition governments where parties are closely aligned and where political competition among them is low, this is achieved by the delegation of decision-making power to the minister of finance. Fiscal contracts that require countries to set multi-year targets and that reinforce those targets increase fiscal discipline in countries with ideologically dispersed coalitions and where parties regularly compete against each other.public indebtedness; budgetary procedures; fiscal rules; European public finances

Die Bewertung der 'dauerhaft tragbaren Finanzlage' der EU Mitgliedstaaten beim Übergang zur dritten Stufe der EWWU

Die "dauerhaft tragfähige Finanzlage" der Mitgliedstaaten ist eine zentrale Voraussetzung für die europäische Wirtschafts- und Währungsunion. Der Vertrag von Maastricht gibt jedoch nur unzureichende Bewertungsmaßstäbe an die Hand, wenn Mitgliedstaaten die Referenzwerte für die öffentlichen Defizite und Schuldenstände überschreiten. Ebensowenig findet die Europäische Kommission in ihrem Konvergenzbericht ein adäquates analytisches Instrument, um die Nachhaltigkeit der sehr kurzen Konsolidierungsanstrengungen in den Mitgliedstaaten zu erfassen. Die Arbeit stellt ein Konzept einer auf Dauer tragfähigen Finanzlage vor, anhand dessen überprüft werden kann, ob eine Regierung nach dem Auftreten eines übermäßigen Defizits die Kontrolle über die öffentlichen Finanzen wiedergewonnen hat. Ausschlaggebend ist, ob die Regierung die fiskalpolitischen und institutionellen Ursachen für die Verschlechterung der Finanzlage konsequent beseitigt. Dieses Konzept wird in Form eines mehrstufigen Bewertungsschemas operationalisiert und auf die EU-Mitgliedstaaten angewandt. Die Ergebnisse der Bewertung unterscheiden sich markant von den Empfehlungen der Europäischen Kommission. --

Fiscal policy events and interest rate swap spreads: evidence from the EU

This paper assesses the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in 2002 produced a reaction in the long-term bond segment of European capital markets. Firstly, we identify the relevant fiscal policy events. Secondly, we estimate the impact of these fiscal events on interest rate swap spreads in 13 EU member states. According to our results the reaction of swap spreads, when significant, has been mostly around five basis points or less.info:eu-repo/semantics/publishedVersio

Fiscal policy events and interest rate swap spreads: evidence from the EU

In this paper we assess the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in the course of 2002 produced a reaction in the long-term bond segment of the capital markets. Firstly, we identify the fiscal policy events and qualitatively assess the views of capital market participants. Secondly, we estimate the impact of these fiscal events on the interest rate swap spreads, which is our measure for the risk premium. According to our results the reaction of swap spreads, where it turned out to be significant, has been mostly around five basis points or less