Pierluigi Balduzzi, Emanuele Brancati, Fabio Schiantarelli, 09 November 2018

The Italian government has decided to pursue an expansionary fiscal policy, with increased welfare spending as its focus. This column uses evidence from the 2010-2012 sovereign debt crisis to explore the potential negative effects of this policy on private investment. It finds that an increase in a bank’s credit default swap spreads leads to lower investment and employment for younger and smaller firms and in the aggregate. These findings suggest the planned fiscal expansion could substantially crowd out private investment.

Antonio Fatás, 28 September 2018

The damage done by procyclical fiscal policy in the euro area between 2010 and 2014 is likely to be even larger than previous studies have suggested. The column argues that fiscal policymakers at the time created a 'doom loop', with unfounded pessimism feeding into policy, and the consequences of those policies increasing pessimism. This has created hysteresis, permanently reducing GDP. 

Jon Danielsson, Robert Macrae, 12 September 2018

Financial policy is determined in multiple domains by separate government authorities. This column explores the hierarchical ranking of these domains and authorities. On top is the authority in charge of fiscal policy, followed by those running monetary, microprudential, and finally macroprudential policies. This ranking can cause conflicts in terms of policy effectiveness and legitimacy.

Stephen Cecchetti, Kim Schoenholtz, 25 July 2018

Akvile Bertasiute, Domenico Massaro, Matthias Weber, 07 July 2018

A key critique of commonly used macroeconomic models is their reliance on the assumption of rational expectations. This column addresses this concern with a model of currency unions wherein expectations are formed through behavioural reinforcement learning, that is, learning from past mistakes. The model suggests that economic integration is of crucial importance to the functioning of a currency union. Monetary policy, in contrast, can only play a limited stabilising role.

Simon Wren-Lewis, 03 June 2018

Xavier Debrun, Luc Eyraud, Andrew Hodge, Victor Lledo, Catherine Pattillo, 22 May 2018

Less than five years into the great euro experiment, the president of the European Commission at the time judged Europe’s limit on public deficits to be "stupid". A more intriguing question, however, is whether numerical constraints on broad indicators of fiscal performance can contain politicians’ penchant for borrowing too much and at the wrong time. This column summarises lessons from recent research on fiscal rules, including the new generation of ‘smart’ rules that emerged around the Global Crisis. Rules can mitigate fiscal excesses if they strike a good balance between simplicity, flexibility, and enforceability. 

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This workshop provides an opportunity for all those interested in the Finance and Fiscal Policy to discuss their research and to exchange ideas. Researchers are invited to submit both empirical and theoretical papers that are broadly consistent with the workshop’s special topic.

Rasmus Wiese, Richard Jong-A-Pin, Jakob de Haan, 26 March 2018

Empirical research concludes that austerity measures that target spending are more likely to succeed than those that target taxation. This column argues that this result arises from a methodological flaw that assumes all countries have equal variability in their budget balance. Correcting for this in data from 20 OECD countries suggests that spending-based and revenue-based adjustments have been equally successful.

Sanjeev Gupta, Michael Keen, Alpa Shah, Geneviève Verdier, 07 March 2018

Digitalisation has vastly increased our ability to collect and exploit the information that governments use to implement macroeconomic policy. The column argues that the ability of governments to use the vast amounts of information held in the private sector on financial transactions are already making fiscal policy more efficient and effective. Problems of access to digital technology, cybersecurity risks, and the difficulty of organisational change in the public sector may slow the pace at which these opportunities are exploited.

M. Ayhan Kose, Franziska Ohnsorge, Naotaka Sugawara, 12 February 2018

The availability of fiscal space has been at the centre of recent debates on the effective use of fiscal policy. This column introduces a new cross-country database of fiscal space indicators and applies it to the analysis of the evolution of fiscal space over the past quarter century and during oil price plunges. Fiscal space has weakened materially in many emerging and developing economies since the Global Crisis. Fiscal space tends to deteriorate in energy-exporting emerging and developing economies during oil price plunges but later improves, often because of procyclical fiscal tightening.

Roel Beetsma, Xavier Debrun, 29 January 2018

The proliferation of independent fiscal councils raises the question as to how toothless watchdogs can effectively prevent harmful policies. Even though these councils do not control any policy lever, high hopes rest in their ability to foster more stabilising and financially responsible fiscal policies. Are such hopes justified considering sketchy theory and limited evidence? What factors seem to make certain councils more effective than others? And what political conditions are conducive to establishing effective institutions? This column introduces some of the key issues related to the effectiveness of independent fiscal councils and discussed in a new eBook.

Atish R. Ghosh, Jonathan D. Ostry, Mahvash S. Qureshi, 12 May 2017

There has been growing recognition that emerging markets may benefit from more proactive management of capital flows, and thus avoid crises when the flows recede. But do they do this in practice? By analysing policy responses in a sample of emerging markets, this column argues that central banks respond to capital inflows through various tools. Ironically, the most commonly prescribed instrument for coping with capital inflows – tighter fiscal policy – is the least-used tool in practice.

Paolo Pasimeni, Stéphanie Riso, 19 January 2017

EU budget reform is a key issue in policy debates, in particular the redistributive effects between member states. This column assesses redistribution within the EU budget over the period 2000 to 2014. It finds that the net redistributive impact of the EU budget is rather small and, contrary to common belief, that the revenue side is more progressive than the expenditure side.

Alberto Alesina, Gualtiero Azzalini, Carlo Favero, Francesco Giavazzi, Armando Miano, 16 December 2016

When a government wants to cut a deficit, it must decide both how and when to do it. Research has treated the two questions as if they are independent, which risks attributing good policy to good timing, or vice versa. This column argues that when the effects are considered simultaneously, the composition of fiscal adjustments is much more important than the state of the cycle. Fiscal adjustments based upon spending cuts have losses that are on average close to zero, while those based upon tax increases are associated with large and prolonged recessions, regardless of whether or not the adjustment starts in a recession. 

Marco Buti, Lucía Rodríguez Muñoz, 28 November 2016

With growth still weaker than is desirable and challenges originating from geopolitical developments further complicating the economic outlook, responsible growth-friendly fiscal policy needs to play a bigger role in supporting demand in the Eurozone today. This column presents a new European Commission Communication on Eurozone fiscal policy, which outlines what a “positive fiscal stance" for the Eurozone would look like.

Marco Buti, Helene Bohn-Jespersen, 25 November 2016

The actions taken in 2008-09 by the G20 avoided an outright depression during the financial crisis, but questions remain over its ability to evolve from a short-term crisis response forum to effectively addressing more long-term challenges. This column argues that to ‘win the peace', G20 members as well as G20 Presidencies have to redesign international economic policy coordination, and ensure that the focus is kept on a limited number of deliverables to which all G20 members can agree.

Luca Dedola, Luc Laeven, 15 November 2016

In September 2016, the ECB held its first Annual Research Conference. This column surveys the contributions to the conference, which brought together policymakers and academics from around the world to promote discussion of topics at the forefront of monetary and financial economic research. Nobel laureate Eric Maskin gave the keynote lecture, addressing whether fiscal policy should be set by politicians, and the conference included eight further presentations and a panel discussion on monetary policy and financial stability.

Jason Furman, 02 November 2016

The landscape of the fiscal policy debate has changed over the past decade, with academics and international organisations moving away from an ‘Old View’ of fiscal policy as ineffective. This column uses examples from the US and Europe to highlight the five principles of a ‘New View’ of fiscal policy, which increasingly appreciates that expansionary fiscal policy is effective in a world of persistently low interest rates, low growth, and strong international linkages.

Igor Masten, Ana Grdović Gnip, 13 October 2016

Fiscal policies in European Economic and Monetary Union states are being reinforced. This column argues that the cyclically adjusted budget balance will be an imprecise tool for measuring fiscal discipline, and structural deficit rules limits are too stringent. If the official methodology is used to trigger corrective fiscal contractions, it may increase macroeconomic instability.

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