Real time uncertainty in fiscal planning and debt accumulation in the euro area

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Title: Real time uncertainty in fiscal planning and debt accumulation in the euro area
ISBN: 978-952-462-830-3
Author: Paloviita, Maritta
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2012
Series number: 35/2012
Year of publication: 2012
Publication date: 21.11.2012
Pages: 29 s.
Keywords: finanssipolitiikka; epävarmuus; euroalue; kriisit; talousarviot; julkinen talous; suhdanteet; valtionvelka;
JEL: E62; E32
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 JEL classification numbers: E62, E32
Rights: https://helda.helsinki.fi/bof/copyright


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