TY  - JOUR
AU  - Fatas, Antonio
AU  - Mihov, Ilian
TI  - The Euro and Fiscal Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14722
PY  - 2009
Y2  - February 2009
DO  - 10.3386/w14722
UR  - http://www.nber.org/papers/w14722
L1  - http://www.nber.org/papers/w14722.pdf
N1  - Author contact info:
Antonio Fatás
INSEAD
1 Ayer Rajah Avenue
138676 Singapore
Singapore
E-Mail: antonio.fatas@insead.edu

Ilian Mihov
INSEAD
1 Ayer Rajah Avenue
Singapore
E-Mail: ilian.mihov@insead.edu
M1  - published as Antonio Fatás, Ilian Mihov. "The Euro and Fiscal Policy," in Alberto Alesina and Francesco Giavazzi, editors, "Europe and the Euro" University of Chicago Press (2010)

M3  - presented at "Europe and the Euro", October 17-18, 2008
AB  - The paper provides and empirical characterization of fiscal policy in the euro area and in a group of twenty-two OECD economies over the period from 1970 until 2007. Using the cyclically-adjusted fiscal balance we document that policy in the euro area has been mildly pro-cyclical. The adoption of the common currency and the constraints imposed by the Stability and Growth Pact have not had a large impact on the cyclical behavior of the structural balance. In contrast, over the past ten years US fiscal policy has become highly countercyclical, which was due predominantly to discretionary changes in tax policies. However, the component of the budget due to automatic stabilizers reacts stronger in the euro-area countries than in the US. We also document the primary balance in the OECD economies is more sensitive to output growth rather than to the output gap, which calls into question the common practice of adjusting structural balances by using elasticities with respect to the output gap.
ER  -