The Effect of Fiscal Policy Asymmetries on Business Cycle Correlation in the EU
The Effect of Fiscal Policy Asymmetries on Business Cycle Correlation in the EU
Author(s): Ladislava Issever Grochová, Petr Rozmahel, Marek LitzmanSubject(s): Economy, EU-Accession / EU-DEvelopment, Public Finances, Fiscal Politics / Budgeting
Published by: Editura Universităţii »Alexandru Ioan Cuza« din Iaşi
Keywords: business cycle synchronicity; fiscal indiscipline; fiscal differences; fiscal policy;
Summary/Abstract: This paper reviews the role of bilateral fiscal differences, fiscal indiscipline and their joint effects in particular in determining business cycle synchronicity in the European Union (EU). Panel data comprising 28 EU members from 1999–2019 are used in the analysis. The two-step Instrumental Variable–Generalized Method of Moments (IV–GMM) is employed to estimate the effects of examined fiscal measures on business cycle correlations. The study finds that fiscal indiscipline doubles the negative effect of increasing fiscal differences on business cycle correlation compared to fiscally disciplined country-pairs. The findings suggest reopening the debate on fiscal policy coordination across Europe.
Journal: Scientific Annals of Economics and Business
- Issue Year: 69/2022
- Issue No: 3
- Page Range: 361-376
- Page Count: 16
- Language: English