Abstract
Fiscal balances have deteriorated quickly in recent years, bringing back to the foreground the question what factors explain such sharp changes. This paper takes a broad perspective at the issue regarding countries included, the range of potential explanatory variables, and the time-span covered. The empirical analysis shows that changes in budget balances are affected by debt growth, macroeconomic developments and political factors. In particular, we find that the run-up to EMU induced additional consolidation in Europe and that budget balances deteriorate markedly in election years. Asset prices also affect budgets, but the impact remains limited in normal times.
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Acknowledgements
We would like to thank Jürgen von Hagen, ECB colleagues and anonymous referees for their comments. The opinions expressed are those of the authors and do not necessarily reflect the views of the ECB.
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Tujula, M., Wolswijk, G. Budget balances in OECD countries: what makes them change?. Empirica 34, 1–14 (2007). https://doi.org/10.1007/s10663-006-9015-y
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DOI: https://doi.org/10.1007/s10663-006-9015-y