International Economics and Economic Policy

, Volume 13, Issue 2, pp 297–317 | Cite as

The European debt crisis and fiscal reactions in Europe 2000–2014

  • Guido Baldi
  • Karsten StaehrEmail author
Original Paper


After the outbreak of the global financial crisis, some governments in the EU experienced serious fiscal problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance in the EU countries before and after the outbreak of the crisis. Fiscal reaction functions of the primary balance are estimated for different groups of EU countries using quarterly data for the pre-crisis period 2001–2008 and for the crisis period 2009–2014. The pre-crisis estimations reveal some differences in persistence and cyclical reaction between different groups of countries, but in most cases little feedback from the debt stock to the primary balance. The fiscal reaction functions of the countries that eventually developed fiscal problems do not stand out. The estimations on data from the crisis period show largely unchanged persistence and counter-cyclicality but much more feedback from the debt stock, and this applies both to the crisis countries and those less affected. In spite of large deficits and accumulation of debt, the underlying fiscal reaction has become more prudent after the outbreak of the European debt crisis.


Fiscal reaction function Global financial crisis Debt crisis Structural break 

JEL Classification

E61 E62 H62 H63 



The authors would like to thank, without implicating, two anonymous referees of IEEP, Davide Furceri, Dmitry Kulikov, Jaanika Meriküll and Lenno Uusküla as well as participants in the NBS conference “Fiscal policy and coordination in Europe” and an Eesti Pank seminar for their useful comments. Staehr acknowledges support from Estonian Base Financing grant no. B617A and Estonian Target Financing grant no. SF0140059s12. The views expressed are those of the authors and not necessarily those of Eesti Pank.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of BernBernSwitzerland
  2. 2.DIW BerlinBerlinGermany
  3. 3.Department of Finance and EconomicsTallinn University of TechnologyTallinnEstonia
  4. 4.Bank of EstoniaTallinnEstonia

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