Date: Wednesday, 13 November 2024, at 2:00 pm
Venue: Seminar Room Bruguier Pacini, DEM
Speaker: Emilio Carnevali (Northumbria University)
Title: “Days of future past? The reform of the European fiscal framework, the (enduring) role of the structural balance and the pro-cyclical bias of potential GDP endogeneity”
Abstract:
The European fiscal framework has recently been reformed, yet the concept of structural balance still plays a crucial role within it. This paper proposes a multidimensional approach to scrutinize the pro-cyclical tendencies embedded in European economic policies arising from the European Commission’s calculation methodology of potential output and structural balance. Initially, a theoretical model shows the vicious cycle dynamic that characterises the fiscal adjustment process during a recession when potential output is dependent on actual output.
Subsequently, numerical simulations juxtapose this dynamic with a counterfactual scenario where potential output is only influenced by long-term supply factors.
Finally, employing dynamic panel data analysis covering 26 EU countries from 1995 to 2023, on an annual basis, empirical evidence is presented to show the procyclical nature of fiscal policies adopted by European governments. Importantly, these estimates facilitate the isolation of the proportion of the pro-cyclical effect attributed solely to the bias stemming from the endogeneity of potential GDP.
Seminar organizers: Caterina Giannetti
Download area
Information and contacts