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NIESR: 'Economic Policy and Surveillance in Europe' - New Research by NIESR

The latest issue of the National Institute Economic Review, which will be published today 1st February, contains research articles by some of the leading academic researchers on European and EU fiscal and economic policy.

The four articles are:

  • Does the structural budget balance guide fiscal policy pro-cyclically? Evidence from the Finnish great depression of the 1990s, by Tero Kuusi, (Research Institute of the Finnish Economy, Etla );
  • Analysing the relevance of mip scoreboard’s indicators, by Tomás Domonkos, Filip Ostrihoň, Ivana Šikulová and Maria Širaňová (IER SAS and FSES CU in Bratislava; IER SAS; IER SAS and FNE EU in Bratislava respectively);
  • Fiscal and other rules in EU economic governance: helpful, largely irrelevant or unenforceable? By Iain Begg (European Institute, LSE);
  • A public investment stimulus in surplus countries and its spillovers in the E, by Jan in't Veld (DG Economic and Financial Affairs, European Commission).

The structural balance is one of the key indicators used by the EU in the new fiscal policy legislation. It measures the cyclically-adjusted general government balance net of one-off expenditure and revenue items.  In his article, Tero Kuusi reveals how fiscal policy based on the measured structural balance would have worked in Finland in practice in the period 1984–2014; a time period that includes the Finnish Great Depression of the early 1990s. The article examines historically estimates of the structural balance using the European Commission’s calculation method and compares them with alternative fiscal policy indicators.

In order to prevent future crises a complex governance reform was undertaken in the EU in 2011 encompassing an early warning system by introducing the Macroeconomic Imbalance Procedure. Domonkos et al write that although its introduction is perceived useful, it has been found by some authors to be vague when launching the Excessive Imbalances Procedure. Their research reflects on such views and aims to evaluate the relevance and significance of all particular MIP indicators as if they had been used to construct a common system. In the short term, activity rates, youth unemployment rates and private sector debt are the best performing indicators, complemented by current account balances in the long term.

EU Member States, particularly in the Euro Area, have been pushed to adopt more extensive and intrusive fiscal rules, writes Iain Begg, but what is the evidence that these are succeeding?  Much of the analysis of rules has concentrated on their technical merits, but tends to neglect the political economy of compliance. Begg’s paper examines the latter looking at compliance with fiscal rules at EU and Member State levels, and at the rules-based mechanisms for curbing other macroeconomic imbalances. It concludes that politically driven implementation and enforcement shortcomings have been given too little attention, putting at risk the integrity and effectiveness of the rules

In his article Jan in't Veld argues that when interest rates are stuck at the zero lower bound and monetary policy does not offset the expansion, public investment in surplus countries like Germany and the Netherlands would not only have positive output effects at home, but could also have significant positive GDP spillovers to the rest of the Euro Area. The gains would be larger the more efficient public investment is. Given current low borrowing costs, the increase in government debt for surplus countries would be very modest, while debt ratios in the rest of the Euro Area could be improved.

The Review will also include NIESR’s analysis of the UK and global economic outlook, detailed in separate press releases under embargo until 00.01am on Wednesday 1st February.

Notes for editors:

Journalists wanting full copies of these papers should please contact the NIESR Press Office: Luca Pieri on 020 7654 1931 / l.pieri@niesr.ac.uk  / press@niesr.ac.uk  

The National Institute Economic Review is a quarterly journal of NIESR. Published in February, May, August and November, it is available from Sage Publications Ltd (http://ner.sagepub.com/) or at subscription@sagepub.co.uk    

NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.

Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk  or by contacting enquiries@niesr.ac.uk . Switchboard Telephone Number: +44 (0) 207 222 7665

Three of the papers published in this Review are from a European Union funded multinational research project, FIRSTRUN (grant 649261). The aims of the project are to investigate the fiscal policy coordination in the EU, to assess the coherence of the recent reforms within the economic governance framework, and to identify reforms that could fill possible gaps. The project commenced in March 2016 and will continue to February 2018. There is much research content available on the project’s dedicated website: http://www.firstrun.eu/.

 

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