Research Discussion Papers, Bank of Finland
No 35/2012:
Real time uncertainty in fiscal planning and debt accumulation in the euro area
Maritta Paloviita ()
Abstract: This study explores real time uncertainty in euro area
fiscal policies since the late 1990s. Using real time data from the OECD
Economic Outlook publications we investigate the impact of real time
uncertainty on fiscal planning and debt accumulation separately for two
country groups in the euro area: countries in geographical periphery
(Greece, Ireland, Italy, Portugal and Spain) and other euro area countries
(Austria, Belgium, Finland, France, Germany and the Netherlands). The
results indicate that real time uncertainty substantially affects fiscal
planning. Ex ante fiscal plans have generally been long-term oriented and
counter-cyclical in the euro area, but in the periphery countries policies
have been more sensitive to economic cycles and less long-term oriented
than in the other countries. We find evidence that high indebtedness in the
periphery countries cannot be explained by short-term pro-cyclical ex ante
fiscal planning. Instead, high initial debt ratios, policy changes after
the budget-planning stage and cumulated macroeconomic imbalances have
contributed substantially to accumulated debt ratios. Overall, reliable
statistics, balanced macroeconomic developments and longer-term policy
orientation, which are central in the new EU fiscal framework, are crucial
for sound and sustainable public finances.
Keywords: fiscal policy; debt accumulation; real time data; cyclical sensitivity; economic crisis; (follow links to similar papers)
JEL-Codes: E32; E62; (follow links to similar papers)
29 pages, November 21, 2012
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Paloviita, Maritta, 'Real time uncertainty in fiscal planning and debt accumulation in the euro area', International Economics and Economic Policy.
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