Discretionary fiscal policy over the cycle: new evidence based on the ESCB Disaggregated Approach

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Abstract

This paper explores how discretionary fiscal policies on the revenue side of thegovernment budget have reacted to economic fluctuations in European Unioncountries. For this purpose, it uses data on legislated revenue changes and structuralindicators provided twice per year by National Central Banks of European Unioncountries in the ESCB framework for analysing fiscal policy. The analysis is based onthe estimation of fiscal policy rules linking these measures of legislated fiscal policychanges to the output gap and other control variables. Then, baseline results arecompared with regression estimates where variations of cyclically-adjusted indicatorsare used as proxy for discretionary fiscal policies, as conventionally proposed in theempirical literature on fiscal policy. Results suggest that, overall, legislated changesin taxes and social security contributions have responded in a strongly pro-cyclicalway to the business cycle, while commonly-used cyclical-adjustment methods pointto a-cyclicality.
Lingua originaleEnglish
Titolo della pubblicazione ospiteWORKING PAPER SERIES-EUROPEAN CENTRAL BANK
Pagine1-43
Numero di pagine43
Stato di pubblicazionePublished - 2009

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