Fiscal policy, government size and EMU business cycle synchronization

Sabrina Bunyan, David Duffy, George Filis, Ishmael Tingbani

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Abstract

We provide new evidence on the effects of fiscal policy and
government size on pairwise business cycle synchronization in EMU. A novel time‐varying framework is employed to estimate business cycle synchronization and subsequently a panel approach is used to establish the role of fiscal variables in determining the pairwise synchronization observations across time. The findings suggest similarities in the size of the public sector, yet divergence in fiscal policy stance, matter for the determination of business cycle synchronization. Hence, increased fiscal federalism in EMU will contribute to increased business cycle synchronization. Our results remain robust to different specifications and sub‐periods.
Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalScottish Journal of Political Economy
Early online date1 Nov 2019
DOIs
Publication statusPublished - 1 Nov 2019

Keywords

  • business cycle synchronization
  • time‐varying correlation
  • EU business cycles
  • fiscal policy
  • time-varying correlation

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