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Automatic Stabilisation, Discretionary Policy and the Stability Pact

Author

Listed:
  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract
This paper describes recent trends on the efficiency of stabilisers in the European Union. Using both macro evidence on the cyclical sensitivity of budget deficit to economic activity, and micro evidence on the tax and expenditure profiles, we conclude, in agreement with the recent literature, that the importance of automatic stabilisation has decreased. After remarking that this trend is contradictory with the current economic institutions of Europe relying exclusively on automatic stabilisation for the conduct of fiscal policy, we argue that increasing flexibility, one alternative way to reduce cyclical fluctuations, does not seem a viable path. The paper concludes defending the appropriateness of discretionary fiscal policy. We argue by means of a simple model that the theoretical arguments against its use are not conclusive, and we describe a recent stream of literature, based on structural VAR models, that concludes rather robustly for the effectiveness of discretionary fiscal policy in the short and long run.

Suggested Citation

  • Francesco Saraceno, 2009. "Automatic Stabilisation, Discretionary Policy and the Stability Pact," Post-Print hal-03397950, HAL.
    • Handle: RePEc:hal:journl:hal-03397950
    as

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    Citations

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    Cited by:

    1. Jean-Paul Fitoussi & Francesco Saraceno, 2010. "Inequality and macroeconomic performance," Working Papers hal-01069429, HAL.
    2. Jérôme Creel & Paul Hubert & Francesco Saraceno, 2013. "Assessing future sustainability of french public finances," SciencePo Working papers Main hal-01070452, HAL.
    3. repec:spo:wpmain:info:hdl:2441/46mbanhapncmp6s9g2choh4pj is not listed on IDEAS
    4. Jean-Paul Fitoussi & Francesco Saraceno, 2013. "European economic governance: the Berlin–Washington Consensus," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(3), pages 479-496.
    5. repec:spo:wpecon:info:hdl:2441/46mbanhapncmp6s9g2choh4pj is not listed on IDEAS
    6. repec:hal:wpspec:info:hdl:2441/53r60a8s3kup1vc9k2c8h4u2h is not listed on IDEAS
    7. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p5488g8pn is not listed on IDEAS
    8. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    9. repec:spo:wpmain:info:hdl:2441/53r60a8s3kup1vc9k2c8h4u2h is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/53r60a8s3kup1vc9k2c8h4u2h is not listed on IDEAS
    11. Fitoussi Jean Paul & Saraceno Francesco, 2010. "Europe: How Deep Is a Crisis? Policy Responses and Structural Factors Behind Diverging Performances," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-19, January.
    12. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    13. Jerome Creel & Paul Hubert & Francesco Saraceno, 2012. "An assessment of Stability and Growth Pact Reform Proposals in a Small-Scale Macro Framework," Documents de Travail de l'OFCE 2012-04, Observatoire Francais des Conjonctures Economiques (OFCE).
    14. repec:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p5488g8pn is not listed on IDEAS
    15. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    16. Christophe Blot & Jérôme Creel & Christine Rifflart & Danielle Schweisguth, 2009. "Petit manuel de stratégies de sortie de crise," SciencePo Working papers Main hal-01023657, HAL.
    17. repec:hal:spmain:info:hdl:2441/46mbanhapncmp6s9g2choh4pj is not listed on IDEAS
    18. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    19. Jean-Paul Fitoussi & Francesco Saraceno, 2009. "How Deep is a Crisis? Policy Responses and Structural Factors Behind Diverging Performances," Documents de Travail de l'OFCE 2009-31, Observatoire Francais des Conjonctures Economiques (OFCE).
    20. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9k2c8h4u2h is not listed on IDEAS
    21. repec:hal:wpspec:info:hdl:2441/f6h8764enu2lskk9p5488g8pn is not listed on IDEAS
    22. repec:hal:wpspec:info:hdl:2441/46mbanhapncmp6s9g2choh4pj is not listed on IDEAS
    23. Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2013. "An assessment of the Stability and Growth Pact reform in a small-scale macro-framework," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1567-1580.
    24. repec:hal:spmain:info:hdl:2441/f6h8764enu2lskk9p5488g8pn is not listed on IDEAS

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