The Effect of Fiscal Policy Asymmetries on Business Cycle Correlation in the EU
DOI:
https://doi.org/10.47743/saeb-2022-0022Keywords:
business cycle synchronicity, fiscal indiscipline, fiscal differences, fiscal policy.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.
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Copyright (c) 2022 Ladislava Issever Grochová, Petr Rozmahel, Marek Litzman
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