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EU fiscal framework reform: discretionary oolicy reaction to the cycle and the role of fiscal rules
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European fiscal rules failed to dampen shocks and are often criticized for being too complex, not transparent and poorly enforced. Using EU country-level data, we find evidence of fiscal policy procyclicality for the key current fiscal framework indicator, the change in structural balance. Wes how that an alternative measure, the cyclically adjusted government spending growth rate, is more effective in activating a counter cyclical fiscal response.Moreover,by simulating the binding ness of the new expenditure rule, we verify that it would have triggered a different course of action by EU member states, changing the EU fiscal history.
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Fiscal policy Procyclicality Countercyclicality Expenditure rule