Fiscal policy responses of euro area countries to the economic crisis

Abstract

The euro area countries have attempted to use fiscal policy to constrain changes in output, employment and incomes that derive from business-cycle fluctuations. That is to say, policies have been counter-cyclical. During the crisis, policy responded more actively than before to cyclical changes in the economy, as the longer-term goals for public finances were partly put on hold in favour of business-cycle policy. Forecast errors concerning the euro area countries and subsequent data revisions were considerably larger during the crisis than in the earlier years. Economic uncertainty at the time of decision making substantially impacted fiscal plans and their implementation during the recession years.