Fiscal policy, government size and EMU business cycle synchronization

Sabrina Bunyan; David Duffy; George Filis; Ishmael Tingbani

doi:10.1111/sjpe.12233

Fiscal policy, government size and EMU business cycle synchronization

Sabrina Bunyan, David Duffy, George Filis, Ishmael Tingbani

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

37 Downloads (Pure)

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 language	English
Pages (from-to)	201-222
Number of pages	22
Journal	Scottish Journal of Political Economy
Volume	67
Issue number	2
Early online date	1 Nov 2019
DOIs	https://doi.org/10.1111/sjpe.12233
Publication status	Published - 7 Apr 2020

Keywords

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

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10.1111/sjpe.12233Licence: CC BY-NC-ND

Final published versionFinal published version, 732 KBLicence: CC BY-NC-ND

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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.",

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AB - 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.

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