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Is discretionary fiscal policy a mitigating mechanism that counteracts business cycle fluctuations in the European Monetary Union?

Ljunghammar, Sarah LU and Agduhr Eronen, Sanna (2010) NEKM01 20101
Department of Economics
Abstract (Swedish)
The aim of the thesis is to evaluate the reaction in fiscal stance in EMU with the purpose to investigate if there is a need for discretionary fiscal policy as a stabilizing mechanism due to the existence of country-specific disparities in order to counteract business cycle fluctuations in the Monetary Union. The second objective is to analyse the role of discretionary fiscal policy during three downturns. The data range from 1992 to 2009 and consist of yearly time series. A Two-Stage Least Square model was used to calculate the reaction in cyclically ad-justed primary government balance to the variation in output gap, government debt, mone-tary gap, election year and at last to the government behaviour in response to booms and busts.... (More)
The aim of the thesis is to evaluate the reaction in fiscal stance in EMU with the purpose to investigate if there is a need for discretionary fiscal policy as a stabilizing mechanism due to the existence of country-specific disparities in order to counteract business cycle fluctuations in the Monetary Union. The second objective is to analyse the role of discretionary fiscal policy during three downturns. The data range from 1992 to 2009 and consist of yearly time series. A Two-Stage Least Square model was used to calculate the reaction in cyclically ad-justed primary government balance to the variation in output gap, government debt, mone-tary gap, election year and at last to the government behaviour in response to booms and busts. Statistically significant results from both country-specific and panel data show that discretionary fiscal policy has been countercyclical since 1992 and throughout the period. From the evaluation of discretionary fiscal policy behaviour during the three downturns it is clear that the general fiscal behaviour was more procyclical for the estimation groups during the first downturn as opposed to the latest two. (Less)
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author
Ljunghammar, Sarah LU and Agduhr Eronen, Sanna
supervisor
organization
course
NEKM01 20101
year
type
H1 - Master's Degree (One Year)
subject
keywords
Discretionary fiscal policies, business cycle fluctuations, Two-stage least squares
language
English
id
1685447
date added to LUP
2010-09-24 08:02:03
date last changed
2010-09-24 08:02:03
@misc{1685447,
  abstract     = {The aim of the thesis is to evaluate the reaction in fiscal stance in EMU with the purpose to investigate if there is a need for discretionary fiscal policy as a stabilizing mechanism due to the existence of country-specific disparities in order to counteract business cycle fluctuations in the Monetary Union. The second objective is to analyse the role of discretionary fiscal policy during three downturns. The data range from 1992 to 2009 and consist of yearly time series. A Two-Stage Least Square model was used to calculate the reaction in cyclically ad-justed primary government balance to the variation in output gap, government debt, mone-tary gap, election year and at last to the government behaviour in response to booms and busts. Statistically significant results from both country-specific and panel data show that discretionary fiscal policy has been countercyclical since 1992 and throughout the period. From the evaluation of discretionary fiscal policy behaviour during the three downturns it is clear that the general fiscal behaviour was more procyclical for the estimation groups during the first downturn as opposed to the latest two.},
  author       = {Ljunghammar, Sarah and Agduhr Eronen, Sanna},
  keyword      = {Discretionary fiscal policies,business cycle fluctuations,Two-stage least squares},
  language     = {eng},
  note         = {Student Paper},
  title        = {Is discretionary fiscal policy a mitigating mechanism that counteracts business cycle fluctuations in the European Monetary Union?},
  year         = {2010},
}