This paper characterizes the dynamic effects of shocks in government spending and taxes on economic activity in the United States in the postwar period. It does so by using a structural VAR approach that relies on institutional information about the tax and transfer systems and the timing of tax collections to identify the automatic response of taxes and spending to activity, and, by implicatio...

Using a conventional model, this paper examines the conditions under which it is possible to stabilise both the output (inflation) cycle and the budget deficit/surplus of a regional economy in a wider currency union. We find that it is never possible. But we can approximate that result (for example, by limiting budgetary instability when the cycle is smoothed) if the product and labour markets ...

Within the discussion on how to implement fiscal discipline in the European Monetary Union, the adequacy of using the same fiscal rules for different MemberCountries has been challenged by some authors, calling for a temporary higher degree of fiscal flexibility in the case of small and less developed countries. We develop a model of a monetary union between two countries that may differ in (i)...

After the fuzziness in Europe that surrounded the implementation of the excessive deficit procedure foreseen by the Stability and Growth Pact (SGP), the European Union had to restore the credibility of the weakened fiscal rule. On March 2005, the 25 members amended the SGP. The constraint was to keep alive the Treaty of Amsterdam, which instituted the SGP. Indeed, an attempt to make major chang...

a r t i c l e i n f o Several studies including Minea et al. (2012) and Lucotte (2012) emphasize that in emerging countries, the adoption of inflation targeting (IT) monetary policy and its discipline character allow intensifying their efforts to collect tax revenue and/or expenditure rationalization, and allows the reduction of their budget deficits (Kadria and Ben Aissa, 2014). Nevertheless, ...

In the aftermath of the recent financial crisis, the U.S. government ran a deficit of 9.9 percent of gross domestic product (GDP) in 2009—an unprecedented level during peacetime. Figure 1 shows the United States’ deficit experience since World War II. Because U.S. history does not provide us with a guide for how fiscal balance will be restored, we look at the experiences of other countries that...

The economy has navigated the COVID-19 pandemic well. In 2021, real GDP growth strongly rebounded by 7.4 percent, supporting a narrower fiscal deficit of 4.1 percent and decline in public debt ratio, consistent with return to pre-pandemic medium-term trend growth.

The reference values of the deficit/GDP ratio and debt/GDP are constant they equal 3% for 60% in European Union countries. occurrence extraordinary situations, such as financial crisis, economic military conflict or pandemic, often makes it impossible to meet fiscal criteria when there ratio.

Joint modelling of fiscal and monetary policies should elucidate on their interaction. We estimate a large parsimonious structural vector equilibrium correction model (PSVECM) to analyse the dynamics of eight variables from the US economy. Shocks to fiscal and monetary variables reveal interesting observations, with the results broadly in agreement with economic theory. A shock to only governme...