Automatic Fiscal Stabilisers: What they are and what they do (original) (raw)

Fiscal Policy in Europe: How Effective Are Automatic Stabilisers?

Empirica, 2003

It is largely recognised that fiscal policy will have largerresponsibilities for cyclicalstabilisation in EMU given the loss of the monetary instrument.At the same time, theEMU's budgetary framework emphasises the need to rely onautomatic fiscal stabilisers,rather than active policies in cushioning the business cycle.We show that automaticstabilisers are relatively powerful in the event of shocksto private consumption, but lessso in the

Automatic Fiscal Stabiliser: Make it happen

The eurozone crisis triggered a whole new series of innovations in EU economic governance in order to make the Union more resilient for the next economic downswing. But one of the more persistent issues are the socio-economic divergences between member states, identified by the Five Presidents’ Report as a major problem in the functioning of the Economic and Monetary Union (EMU). Debates took place in recent years about automatic stabilisers, and more specifically about the possibility of introducing an unemployment insurance within the EMU. While the need for some form of fiscal risk-sharing has become a dominant view in expert circles, there has been much less progress among the main political parties and stakeholders. In this study, Regula Hess and László Andor analyse the political feasibility of the adoption of an automatic fiscal stabiliser (AFS) for the eurozone by evaluating actors’ positions towards three distinctive proposals: 1) cyclical shock insurance, 2) reinsurance, 3) a European basic unemployment insurance; they included an empirical case study of France and Germany as the most relevant players within the intergovernmental bargaining constellation. Although the authors realise the current political context makes the adoption of an AFS improbable, Hess and Andor encourage stakeholders to further pursue the discussion, as windows of opportunities can open at any time, and even give some suggestions on what the parameters of the most feasible proposal might be.

Automatic Fiscal Stabilizers vs . Discretionary Fiscal Policy : Challenges and Policy Options

2013

This paper examine the role of Automatic Fiscal Stabilizers for stabilizing the cyclical fluctuations of macroeconomic output as an alternative to discretionary fiscal policy. Based on the literature in the field, this paper points out the disadvantages of fiscal discretionary policy and argue the need of using Automatic Fiscal Stabilizers in order to provide a faster decision making process, shielded from political interference, and reduced uncertainty for households and business environment. The paper presents some features of AFS operating mechanism and also identifies and systematizes the factors which provide its importance and national individuality. The paper argue the need for continued precaution in the use of discretionary policy, deep concern for implementation of Automatic Fiscal Stabilizers, the objective of making automatic stabilizers more effective and the integration of better measures of fiscal balance into the discretionary policy process. The objectives of the st...

Theoretical Considerations Regarding the Automatic Fiscal Stabilizers Operating Mechanism

Annals of Faculty of Economics, 2012

This paper examines the role of Automatic Fiscal Stabilizers (AFS) for stabilizing the cyclical fluctuations of macroeconomic output as an alternative to discretionary fiscal policy, admitting its huge potential of being an anti crisis solution. The objectives of the study are the identification of the general features of the concept of automatic fiscal stabilizers and the logical assessment of them from economic perspectives. Based on the literature in the field, this paper points out the disadvantages of fiscal discretionary policy and argue the need of using Automatic Fiscal Stabilizers in order to provide a faster decision making process, shielded from political interference, and reduced uncertainty for households and business environment. The paper conclude about the need of using fiscal policy for smoothing the economic cycle, but in a way which includes among its features transparency, responsibility and clear operating mechanisms. Based on the research results the present paper assumes that pro-cyclicality reduces de effectiveness of the Automatic Fiscal Stabilizer and as a result concludes that it is very important to avoid the pro-cyclicality in fiscal rule design. Moreover, by committing in advance to specific fiscal policy action contingent on economic developments, uncertainty about the fiscal policy framework during a recession should be reduced. Being based on logical analysis and not focused on empirical, contextualized one, the paper presents some features of AFS operating mechanism and also identifies and systematizes the factors which provide its importance and national individuality. Reaching common understanding on the Automatic Fiscal Stabilizer concept as a institutional device for smoothing the gap of the economic cycles across different countries, particularly for the European Union Member States, will facilitate efforts to coordinate fiscal policy responses during a crisis, especially in the context of the fiscal harmonization. The main result of this study is the developing of the definition of Automatic Fiscal Stabilizer.

Constricted, lame and pro-cyclical? Fiscal policy in the euro area revisited

International Journal of Sustainable Economy, 2011

It is often argued that fiscal stabilisation in the euro area compares unfavourably with the US, not least because of the perceived limitations of the Stability and Growth Pact. This paper qualifies this perception by taking a closer look at fiscal policy making since the mid-1990s. It examines a number of elements which are generally overlooked or not considered in the analysis of fiscal stabilisation. In particular, on top of discretionary fiscal policy, which generally is at the core of existing studies, it also takes into account the size of automatic stabilisers. Moreover, it considers the difference between policy intentions, as formulated or perceived in real time, and actual outturns, and possible reasons for the gap between the two. On the basis of such a more specific analysis, fiscal stabilisation in the euro area appears less dire than commonly assumed. It also suggests a number of points on how to improve the track record, including by strengthening fiscal governance.

Automatic Stabilisers as a Building Block of the Fiscal Union Architecture

The creation of a minimalist monetary union in the 1990s produced new types of financial and social risks, and the crisis of the EMU brought the EU to massive divergence and a weakening of the national welfare systems. Such dynamics undermine public confidence in both the EU and its single currency. Today the rise of euroskeptic populism (and Brexit in particular) calls for a thorough rethinking of the functioning of the EU. A paradigm shift on EMU should be part of this process. In recent years, expert opinions have converged about how to make the single currency sustainable and how to reconcile its functioning with democratic standards and the European social model. Unemployment insurance is a possible element of economic and monetary reform, while it forms part of the social dimension as well.

Fiscal Rules and Stabilisers in Europe

2004

Fiscal and monetary policies in Europe have been designed to ensure that a stability oriented framework is in place, but they have not always been successful in this end. In this paper we assess the fiscal rules in Europe in this context using NiGEM and other tools. We first look at fiscal developments and their impacts since 1997 in the four largest European Union countries. We then look in particular at the timing and nature of fiscal changes, and at the multiplier impacts of changes in taxes and in spending in these countries. We discuss why these multipliers differ between countries, and look in particular at the role of consumption behaviour and differing liquidity constraints in determining their size. We also argue that spending increases have more impacts than tax cuts. Hence, we conclude that the evolution of demand and budget deficits has varied between these countries both because of the composition of budget changes and their impacts. This analysis allows us to evaluate ...

Some Conceptual Aspects of Stabilisation Trends In The Framework of Eu Fiscal Regulation

2023

The institutional framework in the Economic and Monetary Union is characterized by the presence of a common centralised monetary policy, which is determined at a supranational level by the European Central Bank, and economic and budgetary policy, which is within the competencies of the member states, characterized by a low degree of regulation. In the context of a deteriorating economic situation, many of the Member States violated the fiscal discipline prescribed in the Stability and Growth Pact to support the faster recovery of their economies, leading to the emergence of a debt and fiscal crisis in most countries. Crises handling is related to the strengthening of supranational regulations in the field of fiscal policy.

Automatic Fiscal Stabiliser : Make it happen ! by

2016

The Five Presidents' Report, more than any EU document in the recent period, identifies socioeconomic divergences between member states as a major problem in the functioning of the Economic and Monetary Union (EMU). Debates took place in recent years about automatic stabilisers, and more specifically about the possibility of introducing an unemployment insurance within the EMU. While the need of some form of fiscal risk-sharing has become a dominant view in expert circles, there has been much less progress among the main political parties and stakeholders. This study analyses the political feasibility of the adoption of an automatic fiscal stabiliser (AFS) for the eurozone by evaluating actors' positions towards three distinctive proposals: 1) cyclical shock insurance, 2) reinsurance, 3) a European basic unemployment insurance. It includes an empirical case study of France and Germany as the most relevant players within the intergovernmental bargaining constellation. Scharpf's 1 actor-centred institutionalism integrated with Moravcisk's 2 understanding of the European integration as liberal intergovernmentalism serves as the theoretical framework of this paper. Actors and institutions are studied at the national and the European level. To determine preferences at the national level, actors who participate in the decision-making process have been selected (ministries concerned, social partners, political parties) and interviewed (semi-structured interviews). Governments' positions at the European level result from the aggregation of actors' positions at the national level in combination with the intergovernmental bargaining constellation. The study finds that the adoption of an AFS it currently not politically feasible. The factors that determine this outcome are, firstly, that German actors expect to be net contributors. Secondly, if an AFS is integrated within the social security system, economically left-wing actors will oppose it because they fear harmonisation to a lower standard (race to the bottom), while economically rightwing actors oppose redistribution in the first place. Thirdly, the decision-making institutions at the European level demand a unanimous decision within the European Council so that one country, in this case Germany, is enough to veto adoption. Finally, within the intergovernmental bargaining constellation, France is currently not in the position to negotiate a compromise in the realm of fiscal integration because it cannot credibly commit to a compromise. However, as political feasibility is contingent on the political context, we urge stakeholders to pursue the discussion, as windows of opportunities can open at any time. As a contribution, the authors lay out the parameters of the most feasible proposal resulting from the empirical analysis: it is closest to the proposal of a reinsurance 3 .