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Please use this identifier to cite or link to this item: http://hdl.handle.net/10400.5/2135

Title: The dynamic behaviour of budget components and output
Authors: Afonso, António
Claeys, Peter
Keywords: fiscal indicator
structural balance
SGP
SVAR
short and long-term restrictions
Issue Date: Jul-2007
Publisher: European Central Bank
Citation: Afonso, António e Peter Claeys. 2007. "The dynamic behaviour of budget components and output". European Central Bank working paper series nº 775-2007
Series/Report no.: European Central Bank working paper series;nº 775-2007
Abstract: The main focus of this paper is the relation between the cyclical components of total revenues and expenditures and the budget balance in France, Germany, Portugal, and Spain. We try to uncover past trends behind the development of public finances that contribute to explaining the current stance of fiscal policy. The disaggregate analysis of fiscal policy in an SVAR that mixes long and short-term constraints allows us to look into the transmission channels of fiscal policy and to derive a model-based indicator of structural balance. The main conclusions are that fiscal slippages are mainly due to reversals in tax policies, which are unmatched by expenditure adjustments. As a consequence, deficits rise when economic conditions worsen but cause a 'ratcheting up' in the size of government in economic booms. The Stability and Growth Pact has not eradicated these procyclical policies. Bad policies in good times also contribute to aggregate macroeconomic instability.
URI: http://hdl.handle.net/10400.5/2135
ISSN: 1725-2806
Publisher version: http://www.ecb.int/pub/pdf/scpwps/ecbwp775.pdf
Appears in Collections:DE - Documentos de trabalho / Working Papers

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