Download now Free registration required
This paper analyses the cyclical behaviour of fiscal policy in euro-area countries over the 1980-2005 period, focusing on the distinct role of government revenue and expenditure. The estimation of separate fiscal policy reaction functions in good and bad times reveals that, controlling for other factors, the average stance of fiscal policy is expansionary when output is above potential, thus denoting a pro-cyclical bias in good times, while no strong evidence of a cyclical bias is found in bad times. The separate estimation of reaction functions for revenue and expenditure policy indicates that this pro-cyclical bias is an entirely expenditure-driven phenomenon.
- Format: PDF
- Size: 662.9 KB