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WORK ING PAPER SER I E SNO 1344 / MAY 2011
by Demosthenes Ioannouand Livio Stracca
HAVE EURO AREA AND EU ECONOMIC GOVERNANCE WORKED?
JUST THE FACTS
WORKING PAPER SER IESNO 1344 / MAY 2011
HAVE EURO AREA
AND EU ECONOMIC
GOVERNANCE WORKED?
JUST THE FACTS 1
by Demosthenes Ioannou and Livio Stracca 2
1 We thank participants at a seminar at the ECB, in particular G. Gloeckler, F. Mongelli, P. Mohl and P. Rother; Z. Truchlewski,
D. Skotkova, A. Ghione, J.-P. Vidal and an anonymous referee for useful suggestions and input.
2 Both authors: European Central Bank, DG International and European Relations,
Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany;
e-mails: demosthenes.ioannou@ecb.europa.eu
and livio.stracca@ecb.europa.eu
This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=1846328.
NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors
and do not necessarily reflect those of the ECB.In 2011 all ECB
publicationsfeature a motif
taken fromthe €100 banknote.
© European Central Bank, 2011
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ISSN 1725-2806 (online)
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Abstract 4
Non-technical summary 5
1 Introduction 6
2 Literature review: the stability and growth pact 8
3 Data 9
4 A fi rst look at the evidence 11
5 The stability and growth pact and fi scal behaviour 11
5.1 Empirical model 11
5.2 Results 13
6 The Lisbon strategy and economic performance 15
6.1 Empirical model 17
6.2 Results 18
7 Conclusions 20
References 21
Tables 26
CONTENTS
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Abstract
We test whether two key elements of the EU and euro area economic gover-nance framework, the Stability and Growth Pact and the Lisbon Strategy, havehad any impact on macroeconomic outcomes. We test this proposition using adi¤erence-in-di¤erence approach on a panel of over 30 countries, some of whichare non-EU (control group). Hence, the impact of the EU economic governancepillars is evaluated based on both the performance before and after their appli-cation as well as against the control group. We �nd strong and robust evidencethat neither the Stability and Growth Pact nor the Lisbon Strategy have hada signi�cant bene�cial impact on �scal and economic performance outcomes.We conclude that a profound reform of these pillars is needed to make themwork in the next decade.
Keywords: Stability and Growth Pact, Lisbon Strategy, euro area, Euro-pean Union, governance, institutions.JEL:
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Non-technical summary This paper presents an ex post analysis of whether two key elements of the EU and euro area economic governance framework, the Stability and Growth Pact (SGP) and the Lisbon Strategy, have achieved their goals. Using a difference-in-difference approach in a panel setting, we look at a wide range of annual data coming from 36 countries, over a sample period from 1980 to 2010. We consider a large set of possible control variables, as well as variables which could interact with the success (or lack thereof) of the two EU governance pillars. Their performance EU is assessed both against the countries’ own past performance as well as a control group of non-euro area or non-EU countries, controlling for different national economy characteristics. Overall, our results indicate that so far economic governance in the EU and the euro area has had limited or no success. In particular, we find that 1) The Stability and Growth Pact has had no overall effect on the behaviour of the primary balance. While it has increased the counter-cyclicality of fiscal policy it has also increased its sensitivity to the political business cycle; 2) The Lisbon Strategy has had at best no impact on the behaviour of real per capita GDP growth, employment growth and labour productivity growth. For the SGP, an optimistic reading of our results is that finding no effect of the SGP on fiscal outcomes is an indicator of success since it implies that this institutional framework has prevented the establishment of Economic and Monetary Union to adversely affect fiscal behaviour, a risk that was emphasised widely in the run-up to the euro. However, we consider that an appropriate set of fiscal rules in a monetary union should go beyond the no-change outcome and impose greater fiscal discipline than otherwise, on account of the possible negative spillovers that fiscal profligacy in individual countries may have on other EMU participants whether via the single monetary policy or otherwise, as well as the possible reduction in market discipline for individual Member States brought about by a stable and solid single currency. Our results indicate that the SGP has not delivered according to this stricter benchmark. The main policy implication stemming from our analysis is that substantial progress, or a “quantum leap”, must be made in EU and euro area economic governance to ensure and enhance the gains of Economic and Monetary Union for the benefit of European citizens.
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1 Introduction
In the aftermath of the global �nancial crisis euro area Member States have ex-perienced unprecedented challenges to their public �nances in particular, and theireconomic policies more generally. These challenges have exposed the weaknesses ofthe two pillars of EU and euro area economic governance, namely the �scal frame-work of the Maastricht Treaty and the Stability and Growth Pact (SGP) on the onehand, and the Lisbon Strategy (LS) on the other. Looking forward, it is essential tostrengthen both pillars of EU economic governance. Before we look forward, however,we must set the record straight on the performance of these economic governance pil-lars looking backward, in their �rst decade. This paper tries to answer this question:have the SGP and the LS worked against the objectives that they were created for?One main contribution of this paper is to extend beyond the EU and use non-EU
OECD countries as a control group in an econometric investigation of the e¤ective-ness of the SGP, applying a di¤erence-in-di¤erence approach where the outcomes arecompared both in terms of their own past, for the group of countries which have beensubject to the "treatment" (the EU economic governance pillars), as well as the per-formance of the countries in the control group, also taking into account the in�uenceof a set of control variables. This approach goes beyond most contributions so far onthe SGP which typically focus on EMU or EU countries alone (e.g. Gali and Perotti2003, Annett 2006, Golinelli and Momigliano 2009, Bernoth et al. 2009). Moreover,existing studies usually consider signi�cantly shorter samples (among those that aremost related to our paper, Annett ends in 2004, and Gali and Perotti in 2002). In-stead, we use annual data spanning from 1980 and up to 2009, covering 36 countries.Finally, we test not only for the e¤ect of the SGP on average �scal behaviour, butalso extend our analysis to other possible dimensions of its in�uence, such as thedegree of pro-cyclicality of �scal policy, its being subject to the political cycle, andits responsiveness to market discipline.1
We also apply the same di¤erence-in-di¤erence approach vis-à-vis the non-EUOECD control group for the LS. In the case of the LS, our assessment comes at thetime of conclusion of the original reform agenda and when the European Union isnow ironing out the details of its successor strategy, Europe 2020. In this analysis, wealso include a number of control variables that have come up in the literature on thepolitical economy of structural reform. Unlike previous studies, we do not focus onreform e¤orts but rather on outcomes in terms of long term economic performancemeasures. To our knowledge, this type of exercise has not been performed before, atleast in a systematic manner.Our paper is related to several di¤erent strands of the �scal policy literature,
in particular to three of them. One is the political economy of �scal policy. Forexample, it has been emphasised that �scal pro�igacy may depend on the size and
1However, we don�t consider the complementarities between �scal policy and structural reforms(as, for example, in Buti et al. 2009).
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2 Literature review: the Stability and Growth Pact
There is already a copious literature on the SGP, to which for reasons of space wecannot do full justice. Here we brie�y review a few of the issues that are most relevantfor our analysis.Buti, Eij¢ nger and Franco note (2003) that the Maastricht convergence criteria
and, later, the SGP�s 3% de�cit limit appeared acceptable to enforce �scal disciplineat a time when public �nances in a number of EU countries appeared to be on anunsustainable path. In 1992, the EU�s average debt ratio was almost 60% of GDP;by 1997, it had climbed to almost 75%. While this ratio fell to 63% in 2003, vonHagen (2003) argues that this result cannot be directly attributed to the SGP andis subject to two quali�cations. First, the increase in the average debt ratio from1992-1997 was driven mainly by debt expansion in only �ve countries. Second, thedecrease in the average debt ratio from 1997 to 2001 again saw small states outperformlarge states, achieving a reduction in their debt ratios of almost 20 percentage points(as against the average 5.3% reduction in large states�debt ratios). Annett (2006)uses these �ndings to re�ne the argument that the SGP is inherently more suited tosmall countries, suggesting that the SGP �could be suited to a subgroup of countriesthat (i) are small and more likely to accept an external constraint; (ii) have thepotential for macroeconomic volatility and so appreciate an external anchor; and (iii)rely on the commitment form of �scal governance.� Buiter (2005), writing on thesame period, states more bluntly that as regards sustainability �the SGP has madea contribution. . . only where its prescriptions were incentive-compatible for the targetcountry, that is, aligned with that country�s domestic policy objectives.�As noted by von Hagen (2003), since most European countries had sizeable �scal
expansions during the 1970s and 1980s, a period of consolidation could be expectedin the 1990s irrespective of the Maastricht criteria or the SGP�s strictures. Thus,we can interpret what Fatás and Mihov (2003) described as countries�"consolidationfatigue" as an example of diminished incentive-compatibility. The ECB (2005) (seealso Morris et al. 2006) noted that, from 1999, �scal consolidation stalled or went intoreverse in most euro-area countries. Economic downturn in 2001 led to deteriorationin public �nances, putting an increasing number of Member States at risk of, or�rmly in, excessive de�cit positions. Troubles in France and Germany led to the"suspension" of the SGP and its eventual reform in 2005, a development viewed withalarm by both the European Commission and the ECB.More generally, Filipek and Schreiber (2010) state that until the onset of the
global �nancial crisis, the SGP appeared to be successful: countries were meeting theirMedium-Term Objectives (MTOs) and most had balanced budgets or even surpluses.However, it would seem wrong to attribute this to the 2005 reform which in factweakened the Pact. Indeed, Buiter (2005) and Filipek and Schreiber agree that theSGP did not provide the incentives for necessary restraint during upswings to createroom for expansionary measures during downturns. Furthermore, von Hagen (2003)
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noted that the narrow focus of the SGP on annual de�cits may keep governmentsfrom adopting reform policies that might result in larger de�cits initially before thedesired growth and employment e¤ects kick in.The implementation of the SGP has obviously been followed and evaluated also
by international institutions. The IMF (2010) emphasised how the crisis had exposedthree long-standing weaknesses in the euro area�s �scal framework. First, the SGPhad failed to encourage the buildup of su¢ cient bu¤ers in good times and lower debtto prudent levels, limiting room for manoeuvre in bad times. Second, �scal sur-veillance�s narrow focus on procedural aspects and formal de�cit limits, twinned withCouncil�s reluctance to use binding legal instruments to mandate policy corrections inEDP enforcement, aggravated structural �aws. Third, the euro area �scal frameworklacked centralized crisis management and resolution capacities. The IMF (2010) thusadvocated a strengthening of economic governance in EMU with a focus on enforcingbudgetary discipline.Finally, other research has considered more closely the connection between the
SGP and national �scal institutions and rules. Although the econometric analysis inthis paper does not delve into national �scal frameworks (as does for example Debrunand Kumar 2007), it is worth considering this aspect of the SGP in terms of relevancefor our conclusions.From a ��scal institutionalist�perspective, the SGP should be more successfully
combined with �commitment�member states because it strengthens their rules-basedframeworks; while the legitimacy of delegation states�ministers of �nance is under-mined by the SGP because they no longer have room for manoeuvre (Hallerberg2004). However, country speci�c empirical evidence does not always �t this model(Hodson 2009). Moreover, factors such as the role of veto players in the budgetaryprocess (e.g. German Bundesrat), or the degree of public spending decentralisation(Afonso and Hautpmeier 2009) also seem to a¤ect �scal outcomes.In terms of the existing empirical research on the e¤ects of the Stability and
Growth Pact, Table 1 presents an overview of existing studies and key results. Thegeneral message arising from this literature (see e.g. Gali and Perotti 2003) is thatthe SGP does not seem to have had a major impact on �scal behaviour in the euroarea. One important di¤erence with our approach, as noted, is that these studies arenot based on di¤erence-in-di¤erence estimates and cover signi�cantly smaller sampleperiods, typically up to the early to mid-2000s.
3 Data
The empirical analysis in the paper is based on annual data from 36, mostly advanced,countries, a list of which is contained in Table 2. The sample includes 25 EU countries,15 of which are in the euro area now, and 11 non-EU countries. Since most variablesare not available for all countries, in the regression analyses the country samplenumbers between 30 and 34. The sample period is 1980 to 2009.
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4 A �rst look at the evidence
We �rst look at basic summary statistics for the key variables that are relevant de-pending on whether countries are, or are not, subject to the SGP and to the LS.The data are reported in Table 4. Of course, this only represents preliminary, uncon-ditional evidence as it treats all countries in the same way, irrespective of possibledeterminants, the only di¤erence being whether they are subject to the modalities ofEU and euro area economic governance or not.For �scal variables, the data look clearly better for countries which (and when
they) have been subject to the SGP. The average primary balance is +0.3% withinthe SGP, and -1.2% without it. Countries under the SGP have also experiencedless variation, with a standard deviation of 3.3% (including both cross section andtime series variation) against 4.4%. Results are similar for the other de�nitions ofthe EU �scal rules that we propose (MAASTRICHT , SGP_PRE, SGP_PRE03).Prima facie, therefore, one is tempted to conclude that the SGP has been a successin increasing the average level as well as in reducing the standard deviation of theprimary balance. We will see, however, that this conclusion does not survive in theconditional analysis, where we include other possible determinants of the primarybalance.
(insert Table 4 here)
Concerning the LS, the unconditional results are less promising. Average percapita income growth, perhaps the best single yardstick of the LS (more discussion onthis later), has been 1.2% on average in the countries subject to the Lisbon Strategy,against 2.4% in other countries (including EU countries before 2000), and with ahigher standard deviation.
5 The Stability and Growth Pact and �scal behav-iour
5.1 Empirical model
We address the problem of evaluating the impact of the EU �scal institutions (theSGP and Maastricht) in three sequential steps. First, we estimate a model of ex post�scal behaviour over the full set of countries (both EU and non-EU), similar to, forexample, Gali and Perotti (2003). The model is speci�ed on the primary balance,that is, not the cyclically adjusted budget balance. The choice of this left hand sidevariable - rather than the more common cyclically adjusted one - is motivated by ourdesire to study how the �scal institutions have shaped not only the average behaviourof governments but also their responsiveness to the business cycle, that is, the degreeof pro-cyclicality of �scal policy.
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given exogenously. There is indeed some evidence that countries joining the euro havehad (in the year preceding entry) a higher public debt to GDP ratio than countrieswhich have not adopted the euro. For example, the 11 countries which formed theeuro area in 1999 had a combined debt to GDP ratio of 64.3%, against 47.1% inthe remaining countries (a situation which has reversed since then). Since having ahigher debt may increase incentives towards �scal consolidation especially beyond acertain level, our empirical approach may entail a small bias towards �nding a positivee¤ect for the �scal rule variables. Note that this is only relevant for the conditionsprevailing at the time of euro area (or EU) entry. The e¤ect of higher or lower debtover the whole sample is already captured in our model by the country �xed e¤ect(see Imbens and Wooldridge 2009, in particular page 70); we also include the laggeddebt to GDP ratio in the xit vector.3
5.2 Results
The results of the estimation of equation (1) are reported in Table 5. A high debtto GDP ratio in the previous year, higher trade openness and economic size all con-tribute to a better primary balance. By contrast, income per capita and the size ofgovernment are statistically insigni�cant. The result for economic size is interesting inview of the consideration that larger countries typically have larger �scal multipliers(Buti and Pench 2004); this may imply that they have less need for expansionary �s-cal policies. The output gap is positive and signi�cant, at around 0.3, indicating thataverage �scal behaviour is counter-cyclical.4 We also test (second column) whetherthere is any indication of asymmetry between a positive and a negative output gap,and we �nd that the source of counter-cyclicality only comes from times in which theoutput gap is positive (good times). Due to the relatively large size of the standarderrors, however, we are not able to conclude that the di¤erence in the coe¢ cientsassociated to positive and negative output gaps is statistically signi�cant.5
In the third column, we add political variables taken from the Database of PoliticalInstitutions. We consider several variables capturing (i) the political cycle, (ii) thestrength and cohesion of the government, (iii) political stability and (iv) a measure of�scal centralization. We �nd that years in which legislative elections take place arestrongly associated to a worse primary budget balance, by about 0.5% and statisticallyhighly signi�cant. This con�rms the existing widespread evidence in the literatureof a political business cycle in our sample of countries. We also �nd that the voteshare of the government parties is associated to better budgetary outcomes, indicatingthat stronger governments are better able to keep the �scal house in order. Finally, a
3To deal with the problem of EMU entry endogeneity, Alesina, Ardagna and Galasso (2008) useinstead an instrumental variable approach, where the instruments are the estimated probabilities ofjoining a monetary union.
4This result is very robust to changes in the instruments list.5The Wald test is not reported for brevity.
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of the euro in the 1990s. From the interaction term between economic size and theSGP, we also �nd no evidence that smaller economies have systematically bene�tedmore from the SGP contrary to what is suggested, for example, by von Hagen (2003)and Annett (2006).Finally, we want to establish whether the Stability and Growth Pact has a¤ected
the role of market discipline which, as noted by many observers, seems to have op-erated in quite an ine¢ cient way in EMU, with government bond spreads being �rstvery small and not reactive to �scal conditions, and then (from 2008 onwards) verylarge and exceptionally responsive. What we want to test here is not whether gov-ernment bond spreads react to �scal imbalances, as commonly acknowledged in theliterature, but rather the other way round, namely, if for given spreads the primarybalance reacts to market signals. In the last column of Table 7, therefore, we includean interaction term between the SGP and the previous year�s long-term governmentbond spread versus the United States Treasury bond yield, taken to represent a globalsafe-asset benchmark. There is surprisingly little literature on the disciplining roleof the bond market on government behaviour. Lane (1993) sets out some generalconditions for market discipline to be e¤ective. De Haan and Sturm (2000) studygovernment bond spreads in Europe and come to the conclusion that market disci-pline is not very e¤ective.8 Our results indicate that market discipline - as measuredby the in�uence of government bond spreads in the previous year on the current year�sprimary balance - does not seem to matter much in the determination of primary bal-ances more generally, and this has been so also under the SGP. We also add squaredterms of these variables to capture possible non-linearities but these are again sta-tistically insigni�cant. Therefore, we take this as an indication that if the SGP hashad any e¤ect, it is not through its in�uence on the working of market discipline ongovernment behaviour (although it may still have in�uenced market discipline meantas the responsiveness of yield spreads to �scal imbalances).
(Insert Table 7 here)
6 The Lisbon Strategy and economic performance
Moving beyond the EU/euro area �scal rules, we consider the possible impact of theLisbon Strategy (LS) on structural economic performance. We look at outcomes anddo not consider reform e¤orts. This distinguishes our paper from other papers suchas Duval and Elmeskov (2006) and Alesina, Ardagna and Galasso (2008), which havetried inter alia to establish a link between the intensity of structural reforms and theintroduction of the euro. An important characteristic of the LS was precisely that itdid not focus on a particular set of structural reforms to be implemented, leaving in-dividual EU countries much freedom under the central coordinating procedures of the
8Bulut (2009) also �nds little evidence of market discipline for sovereign borrowers of developingcountries.
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general level of development of a country and society�s adaptability to the globali-sation process. Under subjective factors, Koczor notes the importance of e¢ ciencyof governmental action, political will and the consensus for reform, the extent towhich non-governmental entities (employer and employee organisations) work withthe government to draft and implement the strategy, as well as the social acceptanceof reform.Wyplosz (2010), in line with the call by Ioannou et al. (2008) for a more explicit
benchmarking, argues that the shift from pointed criticism to diplomatic peer pres-sure from the Commission undermined the process. Further, he notes that �politicalleaders are not raised to encourage critical comments from each other. More impor-tantly, perhaps, while even polished exercises of apparent mutual admiration couldstill exercise some pressure, political leaders never forget that they are accountable todomestic voters.�Finally, Padoan (2009) sees an incomplete policy mix and a delay in capitalising on
a changing international environment as the main reasons for failure. The persistentEuropean de�cit in R&D is, in his opinion, the result of a failure to promote theemergence and growth of innovative businesses in new sectors.
6.1 Empirical model
For the empirical model we follow a similar approach as in Section 4. Let zit be anindicator of economic performance that is relevant for the LS. We �rst estimate amodel
zit = �zi;t�1 + �xit + i + �t + "it (4)
where the performance indicator is regressed on a vector of possible fundamentaldeterminants x (possibly also timed t� 1 where reverse causality is a potential con-cern). Once we obtain a satisfactory parsimonious model for equation (4), we addthe dummy variables capturing the LS:
zit = �zi;t�1 + �xit + i + �t + �LISBONit + "it (5)
The coe¢ cient � captures the additional e¤ect, coming on top of all other controlvariables, stemming from the fact that a given country is subject to a supra-nationalprocess, the LS. To simplify things, �nding � > 0 would imply that the LS has"worked" and that its success is visible in the data. Also in this case, as for theanalysis of ex post �scal behaviour, we emphasise the risk of selection bias, as itcould well be that countries with structural weaknesses are precisely those whichundertake a stronger reform e¤ort, in the same way as patients who are more ill aremore likely to take a certain medicine. In the case of the LS, this may be less of aconcern since it applies indistinctly to the whole EU and the decision to join the EU(unlike, at least in part, the decision to join the euro area) largely re�ects geographical
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and political determinants, not economic policy objectives.9 Furthermore, this is ifanything a source of bias in the direction of �nding � > 0; rather than the other wayround.It should be recalled that the LS was an overarching strategy entailing not only an
economic but also a social and environmental dimension. This was indeed identi�edas one of its weaknesses and may explain the poor performance in economic terms. Wefocus on the economic dimension and take three indicators as best overall measures ofeconomic performance: (i) per capita income growth, (ii) labour productivity growth,and (iii) employment growth.
6.2 Results
Table 8 reports the results for per capita income growth. In estimating equation (4)and retaining the signi�cant variables, we �nd that a few variables are robustly asso-ciated to per capita income growth. First, initial conditions matter: the lagged percapita income level has a negative sign, suggesting some catching up process. Second,trade openness is associated to stronger per capita income growth, as is (surprisinglyfrom one angle but see below) a higher level of Employment Protection Legislation.Turning to the political and institutional variables, we �nd that Political Stability(note that a higher reading of this indicator implies less stability) and ProportionalRepresentation are associated to higher per capita growth. The results indicate thatcountries with lower income per capita, higher trade openness, more employmentprotection, more political stability and with a proportional political system tend toexperience higher per capita income growth. We also try a number of additional vari-ables that turn out to be insigni�cant. We try the World Bank Rule of Law indicator,as in Rodrik et al. (2004), but we �nd this variable insigni�cant, though correctlysigned. The insigni�cance is likely to be linked to two main di¤erences between theanalysis in this paper and Rodrik et al. (2004). First, we look at per capita incomegrowth rather than levels. Second, our panel includes mostly rich countries, while thequality of institutions (such as the protection of property rights) are likely to explainthe di¤erence between poor and rich countries rather than the smaller di¤erencesamong rich countries. Furthermore, economic size is also insigni�cant when includedtogether with openness (though it is signi�cant when included alone). Finally, wealso try several variables capturing the country�s political institutions, �nding all ofthem insigni�cant (apart from those reported in Table 7).10
(Table 8 here)
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7 Conclusions
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References
[1] Afonso, A. and S. Hauptmeier (2009): "Fiscal behaviour in the European Union:rules, �scal decentralization and government indebtedness", ECBWorking PaperNo. 1054.
[2] Alesina, A. and G. Tabellini (1990): "Voting on the budget de�cit", AmericanEconomic Review, 80, 1, pp. 37-49.
[3] Alesina, A. and A. Drazen (1991): "Why are �scal stabilisations delayed", Amer-ican Economic Review, 81, pp. 1170-1180.
[4] Alesina, A. and R. Perotti (1999): "Budget de�cits and budget institutions", inPoterba J. and J. von Hagen, Fiscal Institutions and Fiscal Performance, NBER,Chicago: University of Chicago Press.
[5] Alesina, A., and R. Wacziarg (1998): "Openness, country size, and government",Journal of Pulic Economics, 69, pp. 305-321.
[6] Alesina, A., Ardagna, S. and V. Galasso (2008): "The euro and structural re-forms", NBER Working Paper No. 14479.
[7] Annett, A. (2006): "Enforcement and the Stability and Growth Pact: How �scalpolicy did and did not change under Europe�s �scal framework", IMF WorkingPaper No. 06/116.
[8] Beck, T., Clarke, G., Gro¤, A., Keefer, P. and P. Walsh (2001): "New toolsin comparative political economy: The Database of Political Institutions." 15:1,165-176 (September), World Bank Economic Review.
[9] Bernoth, K., Hughes Hallet, A. and J. Lewis (2009): "Did �scal policy makersknow what they were doing? Reassessing �scal policy with real time data",CEPR Discussion Paper No. 6758.
[10] Beetsma, R., Giuliodori, M. and P. Wierts (2009): "Budgeting versus imple-menting �scal policy in the EU", Economic Policy, forthcoming.
[11] Boeri, T., Castanheira, M., Faini, R. and V. Galasso (2006): Structural reformsWithout Prejudices, Oxford University Press.
[12] Buiter, Willem H. (2005): "The �Sense and Nonsense of Maastricht�Revisited:What Have We Learnt About Stabilization in EMU?", Discussion Paper Series�No. 5405, Centre for Economic Policy Research.
[13] Bulut, L. (2009): "Market Disciplining of the Developing Countries�SovereignGovernments", available at SSRN: http://ssrn.com/abstract=1323440.
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TABLE 1. Synoptic table: Empirical literature on the effects of the SGP
Author(s) Estimation approach / method
Sample Period Main results
Afonso and Hauptmeier (2010)
Panel /LSDVc
EU-27 1990-2005
Positive impact of the SGP on the primary balance, but not on primary expenditure.Negative impact of the electoral cycle.
Cimadomo (2005) Panel / Estimation of linear and non-linearrelationships
EuroareaexceptGRCandLUX
1981-2005
No significant evidence of a pro-cyclical bias in downturns induced by the SGP. Tighter policies when public indebtedness grows. The policy is a-cyclical in case of positive output gap. Fiscal decentralisation contributes to an increase in the total primary spending-to-GDP ratio.
Forni and Momigliano (2005)
Panel / OLS, FE-IV, GMM
Euroarea,exceptLUXandIRL
1993-2003
The differences between real-time and ex post data are substantial and tend to be systematic across time. No major differences between OECD and euro area countries when it comes to fiscal reaction in bad times.
Gali and Perotti (2003)
Panel / FE IV
EA-11 1980-2002
Discretionary fiscal policy in EMU countries has become more countercyclical over time, as observed in other countries, even if OECD countries are more countercyclical. Decline in public investment experienced over the last decade by EMU countries is also part of a global trend and is smaller than in OECD countries.
Annett (2006) Panel / pooled OLS, FE, 2SLS
EA-11 1980-2004
Asymmetric success in the implementation of the SGP is linked to the size, volatility as well as commitment policy of each euro area country.
Bernoth et al. (2010)
Panel /FD GMM
EU-14 1995-2006
The pro-cyclicality of fiscal policies only arises in the ex post data.Real time data suggests that policymakers have tried to run counter-cyclical discretionary policy, but find it hard to do.
Note: LSDVc is the least square dummy variable estimator corrected for a dynamic panel datasetting; FE is the fixed-effect estimator; FE-IV is the fixed effect estimator using instrumenta
l variables to deal with the endogeneity problem; 2SLS is the two-stage least square estimator;
GMM is the generalised method of moments estimator; FD GMM is the first-difference GMM (Blundell-Bond) estimator.
27ECB
Working Paper Series No 1344May 2011
TABLE 2. List of countries
EU Non-EUAustria Australia
Belgium CanadaBulgaria IcelandCyprus Japan
Czech Republic Republic of KoreaDenmark MexicoEstonia New ZealandFinland NorwayFrance Switzerland
Germany TurkeyGreece USA
HungaryIreland
ItalyLatvia
LithuaniaLuxembourgNetherlands
PolandPortugalRomania
Slovak Rep.Slovenia
SpainUK
28ECBWorking Paper Series No 1344May 2011
TA
BL
E 3
. Sum
mar
y st
atis
tics
Full
sam
ple
1995
-201
0O
bsM
ean
Std.
Dev
.M
inM
axO
bsM
ean
Std.
Dev
.M
inM
ax
Publ
ic d
efic
it90
8-0
.85
4.08
-12.
2520
.40
544
-0.0
53.
87-1
2.25
20.4
0Pr
imar
y ba
lanc
e95
6-0
.92
4.31
-19.
2716
.13
555
-0.7
04.
78-1
9.27
16.1
3C
AB
833
-0.5
43.
14-1
4.51
7.73
500
-0.4
03.
32-1
4.51
7.22
Publ
ic d
ebt
835
52.8
431
.85
3.79
193.
4951
751
.36
33.6
23.
7919
3.49
Gov
t. bo
nd sp
read
vs.
US
818
1.75
6.01
-8.4
094
.55
482
1.42
6.33
-4.2
894
.55
Real
GD
P w
eigh
t10
701.
893.
960.
0223
.79
555
1.71
3.78
0.02
23.7
9Tr
ade
open
ness
964
72.0
737
.45
14.0
122
2.08
555
80.0
538
.45
16.6
922
2.08
Gov
t. sh
are
of in
com
e85
744
.37
8.76
17.0
870
.93
498
43.3
37.
2220
.60
62.9
1O
utpu
t gap
907
-0.4
72.
72-1
2.56
12.0
951
2-0
.30
2.78
-10.
2812
.09
Out
put g
ap>0
907
0.80
1.40
0.00
12.0
951
20.
861.
480.
0012
.09
Out
put g
ap<0
1327
-0.8
71.
63-1
2.56
0.00
555
-1.0
71.
83-1
0.28
0.00
Inco
me
per c
apita
1047
63.8
128
.29
16.1
815
2.71
555
56.5
326
.23
16.1
815
2.71
Ban
king
cris
is d
umm
y11
470.
070.
260.
001.
0055
50.
080.
260.
001.
00R
ule
of L
aw46
81.
140.
70-0
.64
2.12
468
1.14
0.70
-0.6
42.
12Le
gisl
ativ
e El
ectio
n H
eld
1229
0.27
0.44
0.00
1.00
555
0.26
0.44
0.00
1.00
Vot
e sh
are
of g
ovt.
parti
es13
1645
.36
22.2
60.
0010
0.00
555
46.0
313
.38
0.00
73.9
0Pl
ural
ity11
940.
500.
500.
001.
0055
50.
480.
500.
001.
00Pr
opor
tiona
l rep
rese
ntat
ion
1148
0.86
0.35
0.00
1.00
555
0.89
0.31
0.00
1.00
SGP
1147
0.13
0.34
0.00
1.00
555
0.27
0.44
0.00
1.00
SGP_
EXT
1147
0.16
0.36
0.00
1.00
555
0.32
0.47
0.00
1.00
MA
AST
RIC
HT
1147
0.26
0.44
0.00
1.00
555
0.46
0.50
0.00
1.00
SGP_
PRE0
311
470.
050.
220.
001.
0055
50.
100.
300.
001.
00Em
ploy
men
t gro
wth
905
0.01
0.03
-0.2
60.
1255
00.
010.
03-0
.16
0.08
Per c
apita
inco
me
grow
th96
40.
020.
04-0
.20
0.15
555
0.02
0.04
-0.2
00.
15La
bour
pro
duct
ivity
gro
wth
944
0.02
0.03
-0.3
10.
1655
50.
020.
03-0
.13
0.16
Labo
ur fo
rce
grow
th91
30.
010.
02-0
.09
0.10
540
0.01
0.02
-0.0
90.
10Em
ploy
men
t sha
re o
f pop
ulat
ion
942
0.55
0.11
0.21
0.78
550
0.56
0.11
0.21
0.78
Wag
e sh
are
of in
com
e93
157
.88
7.15
37.6
584
.59
550
55.7
27.
0039
.46
76.2
4Pr
oduc
t Mar
ket R
egul
atio
n32
21.
690.
560.
823.
9732
21.
690.
560.
823.
97Em
ploy
men
t Pro
tect
ion
Legi
slat
ion
632
2.11
1.01
0.21
4.19
370
1.99
0.90
0.21
3.76
LISB
ON
1147
0.17
0.37
0.00
1.00
555
0.34
0.47
0.00
1.00
LISB
ON
_YEA
RS
1147
0.80
2.11
0.00
10.0
055
51.
652.
800.
0010
.00
Sam
ple
perio
d: a
nnua
l dat
a fr
om 1
980
to 2
010.
See
text
for f
urth
er e
xpla
natio
ns o
n th
e so
urce
s and
def
initi
ons o
f the
dat
a.
29ECB
Working Paper Series No 1344May 2011
The full sample goes from 1980 to 2010 (annual data).
TABLE 4. Unconditional moments of the primary balance and per capita growth
Obs. Mean Std. dev.Primary balance
Full sample 956 -0.92 4.31No SGP 806 -1.17 4.42SGP 150 0.39 3.39No SGP_PRE 778 -1.27 4.44SGP_PRE 178 0.58 3.3No MAASTRICHT 662 -1.41 4.56MAASTRICT 294 0.18 3.46No SGP_PRE03 899 -1.12 4.33SGP_PRE03 57 2.16 2.36
Per capita growthFull sample 964 2.2 3.7No Lisbon 774 2.4 3.5Lisbon 190 1.2 4.4
Note: See text for the definition of the dummy variables. All data are in percentage points per year. The f
30ECBWorking Paper Series No 1344May 2011
TA
BL
E 5
. Ave
rage
fisc
al b
ehav
iour
Dep
ende
nt v
aria
ble:
Prim
ary
bala
nce
(unl
ess o
ther
wis
e sp
ecifi
ed)
(1)
(2)
(3)
(4)
(5)
(6)
19
92-2
010
No
cris
is:
1980
-200
7 C
AB
(b)
Econ
omic
var
iabl
es:
Out
put g
ap>0
0.62
**
(0.2
5)
Out
put g
ap<0
0.15
(0
.14)
Pr
imar
y ba
lanc
e (t-
1)
0.67
***
0.68
***
0.68
***
0.63
***
0.66
***
(0.0
49)
(0.0
50)
(0.0
40)
(0.0
51)
(0.0
37)
D
ebt t
o G
DP
(t-1)
0.
022*
**
0.02
0**
0.02
9***
0.
041*
**
0.02
6***
0.
027*
**
(0
.008
2)
(0.0
081)
(0
.007
2)
(0.0
12)
(0.0
065)
(0
.006
2)
Trad
e op
enne
ss (t
-1)
0.03
7***
0.
035*
**
0.03
1**
0.01
9 0.
038*
**
0.03
6***
(0.0
13)
(0.0
13)
(0.0
12)
(0.0
15)
(0.0
12)
(0.0
12)
Size
(t-1
) 1.
02**
* 1.
02**
* 0.
91**
1.
14**
0.
96**
0.
87**
*
(0.3
5)
(0.3
5)
(0.3
6)
(0.4
9)
(0.4
1)
(0.3
2)
Inco
me
per c
apita
(t-1
) -0
.041
* -0
.046
*
(0.0
24)
(0.0
23)
Gov
ernm
ent s
hare
of i
ncom
e (t-
1)
0.05
9 0.
068*
(0.0
36)
(0.0
37)
Ban
king
cris
is
-0.9
0 -0
.90
(0
.59)
(0
.62)
O
utpu
t gap
0.
35**
*
0.23
***
0.30
***
0.13
**
0.06
1
(0.0
83)
(0
.072
) (0
.10)
(0
.065
) (0
.054
) C
yclic
ally
adj
uste
d pr
imar
y ba
lanc
e (t-
1)
0.
66**
*
(0.0
47)
Polit
ical
and
inst
itutio
nal v
aria
bles
:
V
ote
Shar
e of
Gov
ernm
ent P
artie
s
0.
017*
0.
020*
0.
023*
* 0.
0063
(0.0
090)
(0
.011
) (0
.011
) (0
.007
5)
31ECB
Working Paper Series No 1344May 2011
Legi
slat
ive
Elec
tion
Hel
d
-0
.50*
**
-0.4
6**
-0.4
6***
-0
.40*
**
(0
.16)
(0
.19)
(0
.15)
(0
.12)
Pl
ural
ity
1.03
* 0.
021
1.09
**
0.43
(0
.57)
(0
.80)
(0
.50)
(0
.43)
O
bser
vatio
ns
717
717
731
560
628
692
R-s
quar
ed
0.64
1 0.
630
0.64
2 0.
579
0.67
5 0.
625
Num
ber o
f cou
ntry
33
33
34
34
33
32
J t
est (
P va
lue)
(a
) (a
) (a
) (a
) (a
) (a
) K
leib
erge
n-Pa
ap te
st fo
r und
erid
entif
icat
ion
(P v
alue
) 0
4.1e
-10
0 0
0 0
Not
e: R
obus
t sta
ndar
d er
rors
in p
aren
thes
es; *
** p
<0.0
1, *
* p<
0.05
, * p
<0.1
. The
equ
atio
n is
est
imat
ed b
y in
stru
men
tal v
aria
bles
(GM
M),
whe
re th
e po
tent
ially
end
ogen
ous
varia
ble
is th
e ou
tput
gap
. The
inst
rum
ent i
s on
e la
g of
the
outp
ut g
ap, h
ence
the
equa
tion
is e
xact
ly id
entif
ied.
The
sam
ple
perio
d is
198
0-20
10 u
nles
s ot
herw
ise
spec
ified
. Ti
me
and
coun
try fi
xed
effe
cts a
re a
lway
s inc
lude
d in
the
mod
el.
(a)
The
equa
tion
is e
xact
ly id
entif
ied.
(b
)C
yclic
ally
adj
uste
d pr
imar
y ba
lanc
e.
32ECBWorking Paper Series No 1344May 2011
TA
BL
E 6
. Int
rodu
cing
the
SGP
dum
mie
s
Dep
ende
nt v
aria
ble:
Prim
ary
bala
nce (1)
(2)
(3)
(4)
(5)
Econ
omic
var
iabl
es:
Out
put g
ap
0.24
***
0.23
***
0.23
***
0.24
***
0.24
***
(0
.072
) (0
.072
) (0
.071
) (0
.073
) (0
.072
) Pr
imar
y ba
lanc
e (t-
1)
0.68
***
0.68
***
0.68
***
0.68
***
0.68
***
(0
.040
) (0
.040
) (0
.040
) (0
.040
) (0
.043
) D
ebt t
o G
DP
(t-1)
0.
029*
**
0.02
9***
0.
031*
**
0.02
9***
0.
029*
**
(0
.007
1)
(0.0
072)
(0
.007
3)
(0.0
072)
(0
.007
3)
Size
(t-1
) 0.
91**
0.
91**
0.
93**
* 0.
91**
0.
94**
*
(0.3
6)
(0.3
6)
(0.3
6)
(0.3
6)
(0.3
6)
Trad
e op
enne
ss (t
-1)
0.03
2**
0.03
2**
0.03
0**
0.03
2**
0.02
8**
(0
.012
) (0
.013
) (0
.012
) (0
.012
) (0
.013
) D
efic
it>2%
(t-1)
0.
18
(0
.25)
Po
litic
al a
nd in
stitu
tiona
l var
iabl
es: Le
gisl
ativ
e El
ectio
n H
eld
-0.5
0***
-0
.50*
**
-0.4
9***
-0
.50*
**
-0.5
0***
(0.1
5)
(0.1
5)
(0.1
5)
(0.1
6)
(0.1
5)
Vot
e Sh
are
of G
over
nmen
t Par
ties
0.01
8*
0.01
7*
0.01
4 0.
017*
0.
018*
*
(0.0
090)
(0
.009
0)
(0.0
090)
(0
.009
0)
(0.0
090)
Pl
ural
ity
1.04
* 1.
03*
0.78
1.
04*
1.15
**
(0.5
7)
(0.5
7)
(0.5
9)
(0.5
7)
(0.5
8)
SGP
dum
mie
s:
SGP
-0.1
4
0.08
0
(0.3
0)
(0
.33)
SG
P_PR
E
-0.0
20
(0
.31)
MA
AST
RIC
HT
0.51
*
(0.3
0)
SGP_
PRE0
3
-0.1
6
33ECB
Working Paper Series No 1344May 2011
(0.3
0)
D
efic
it>2%
(t-1)
*SG
P
-0
.87*
*
(0.4
0)
Obs
erva
tions
73
1 73
1 73
1 73
1 73
1 R
-squ
ared
0.
642
0.64
2 0.
643
0.64
2 0.
644
Num
ber o
f cou
ntry
34
34
34
34
34
J t
est (
P va
lue)
(a
) (a
) (a
) (a
) (a
) K
leib
erge
n-Pa
ap te
st fo
r und
erid
entif
icat
ion
(P v
alue
) 0
0 0
0 0
Not
e: R
obus
t sta
ndar
d er
rors
in p
aren
thes
es; *
** p
<0.0
1, *
* p<
0.05
, * p
<0.1
. The
equ
atio
n is
est
imat
ed b
y in
stru
men
tal v
aria
bles
(GM
M),
whe
re th
e po
tent
ially
end
ogen
ous
varia
ble
is th
e ou
tput
gap
. The
inst
rum
ent i
s on
e la
g of
the
outp
ut g
ap, h
ence
the
equa
tion
is e
xact
ly id
entif
ied.
The
sam
ple
perio
d is
198
0-20
10 u
nles
s ot
herw
ise
spec
ified
. Ti
me
and
coun
try fi
xed
effe
cts a
re a
lway
s inc
lude
d in
the
mod
el.
For t
he d
efin
ition
of t
he d
umm
y va
riabl
es, s
ee te
xt.
(a)
The
equa
tion
is e
xact
ly id
entif
ied.
34ECBWorking Paper Series No 1344May 2011
TA
BL
E 7
. Int
rodu
cing
inte
ract
ion
term
s
Dep
ende
nt v
aria
ble:
Prim
ary
bala
nce
(1
) (2
) (3
) (4
) (5
) (6
)
Ec
onom
ic v
aria
bles
:
O
utpu
t gap
0.
22**
* 0.
22**
* 0.
28**
* 0.
24**
* 0.
24**
* 0.
22**
*
(0.0
72)
(0.0
73)
(0.0
97)
(0.0
75)
(0.0
73)
(0.0
72)
Prim
ary
bala
nce
(t-1)
0.
68**
* 0.
68**
* 0.
68**
* 0.
68**
* 0.
66**
* 0.
68**
*
(0.0
40)
(0.0
40)
(0.0
41)
(0.0
40)
(0.0
46)
(0.0
40)
Deb
t to
GD
P (t-
1)
0.02
9***
0.
030*
**
0.03
1***
0.
029*
**
0.02
5***
0.
029*
**
(0
.007
1)
(0.0
072)
(0
.007
7)
(0.0
073)
(0
.007
4)
(0.0
071)
Si
ze (t
-1)
0.99
***
1.01
***
0.89
**
0.89
**
0.77
**
1.00
***
(0
.37)
(0
.37)
(0
.37)
(0
.36)
(0
.37)
(0
.37)
Tr
ade
open
ness
(t-1
) 0.
034*
**
0.03
0**
0.03
1**
0.03
2**
0.05
3***
0.
034*
**
(0
.013
) (0
.013
) (0
.012
) (0
.013
) (0
.013
) (0
.013
) G
over
nmen
t bon
d sp
read
vs.
the
USA
, t-1
-0
.030
(0
.042
)
Gov
ernm
ent b
ond
spre
ad v
s. th
e U
SA sq
uare
d, t-
1
0.
0005
6
(0
.000
42)
Po
litic
al a
nd in
stitu
tiona
l var
iabl
es:
Legi
slat
ive
Elec
tion
Hel
d -0
.44*
**
-0.4
5***
-0
.47*
**
-0.5
0***
-0
.31*
* -0
.44*
**
(0
.16)
(0
.16)
(0
.16)
(0
.16)
(0
.14)
(0
.16)
V
ote
Shar
e of
Gov
ernm
ent P
artie
s 0.
017*
0.
016*
0.
013
0.01
8*
0.01
1 0.
017*
(0.0
091)
(0
.009
1)
(0.0
088)
(0
.009
1)
(0.0
088)
(0
.009
1)
Plur
ality
1.
11*
1.12
* 0.
90
1.03
* 0.
53
1.11
*
(0.6
1)
(0.6
1)
(0.6
0)
(0.5
8)
(0.5
8)
(0.6
2)
SGP
dum
mie
s and
inte
ract
ions
:
SG
P 0.
97
0.
50
0.97
(0.7
5)
(0
.73)
(0
.78)
O
utpu
t gap
*SG
P 0.
15*
0.
20*
0.15
*
(0.0
88)
(0
.12)
(0
.088
) D
ebt t
o G
DP(
t-1)*
SGP
-0.0
042
0.
0035
-0
.004
2
35ECB
Working Paper Series No 1344May 2011
(0
.007
8)
(0
.007
8)
(0.0
077)
Le
gisl
ativ
e El
ectio
n H
eld*
SGP
-0.2
1***
-0.2
2***
-0
.21*
**
(0
.066
)
(0.0
63)
(0.0
66)
SGP_
PRE
0.
75
(0.7
0)
Out
put g
ap*S
GP_
PRE
0.
11
(0.0
82)
Deb
t to
GD
P(t-1
)*SG
P_PR
E
-0.0
042
(0.0
076)
Le
gisl
ativ
e El
ectio
n H
eld*
SGP_
PRE
-0
.13*
*
(0
.053
)
M
AA
STR
ICH
T
1.
03
(0.6
4)
O
utpu
t gap
*MA
AST
RIC
HT
-0.1
3
(0
.11)
Deb
t to
GD
P(t-1
)*M
AA
STR
ICH
T
-0
.006
1
(0
.008
1)
Le
gisl
ativ
e El
ectio
n H
eld*
MA
AST
RIC
HT
-0.0
59
(0.0
47)
SG
P_PR
E03
0.
55
(0.6
9)
Out
put g
ap*S
GP_
PRE0
3
-0.1
4
(0
.16)
D
ebt t
o G
DP(
t-1)*
SGP_
PRE0
3
-0.0
053
(0.0
066)
Le
gisl
ativ
e El
ectio
n H
eld*
SGP_
PRE0
3
-0.0
79
(0.0
88)
Gov
ernm
ent b
ond
spre
ad v
s. th
e U
SA, t
-1*S
GP
0.53
(0
.43)
Gov
ernm
ent b
ond
spre
ad v
s. th
e U
SA sq
uare
d, t-
1*SG
P
0.
25
(0.2
5)
Si
ze t-
1*SG
P
0.00
88
(0.1
7)
Obs
erva
tions
73
1 73
1 73
1 73
1 66
7 73
1 R
-squ
ared
0.
650
0.64
7 0.
645
0.64
2 0.
689
0.65
0
36ECBWorking Paper Series No 1344May 2011
Num
ber o
f cou
ntry
34
34
34
34
33
34
J t
est (
P va
lue)
(a
) (a
) (a
) (a
) (a
) (a
) K
leib
erge
n-Pa
ap te
st fo
r und
erid
entif
icat
ion
(P v
alue
) 0
0 0
0 0
0
Not
e: R
obus
t sta
ndar
d er
rors
in p
aren
thes
es; *
** p
<0.0
1, *
* p<
0.05
, * p
<0.1
. The
equ
atio
n is
est
imat
ed b
y in
stru
men
tal v
aria
bles
(GM
M),
whe
re th
e po
tent
ially
end
ogen
ous
varia
ble
is th
e ou
tput
gap
. The
inst
rum
ent i
s on
e la
g of
the
outp
ut g
ap, h
ence
the
equa
tion
is e
xact
ly id
entif
ied.
The
sam
ple
perio
d is
198
0-20
10 u
nles
s ot
herw
ise
spec
ified
. Ti
me
and
coun
try fi
xed
effe
cts a
re a
lway
s inc
lude
d in
the
mod
el.
For t
he d
efin
ition
of t
he d
umm
y va
riabl
es se
e te
xt, S
ectio
n 3.
(a
)Th
e eq
uatio
n is
exa
ctly
iden
tifie
d.
37ECB
Working Paper Series No 1344May 2011
TA
BL
E 8
. The
Lis
bon
Stra
tegy
: per
cap
ita in
com
e gr
owth
Dep
ende
nt v
aria
ble:
per
cap
ita in
com
e gr
owth
(1
) (2
) (3
) (4
) (5
) (6
)
19
92-2
010
No
cris
is: 1
980-
2007
Ex
clud
ing
very
low
in
com
e pe
r ca
pita
Per c
apita
inco
me
grow
th (t
-1)
0.25
***
0.25
***
0.25
***
0.17
***
0.24
***
0.34
***
(0
.059
) (0
.059
) (0
.059
) (0
.065
) (0
.060
) (0
.067
) In
com
e pe
r cap
ita (t
-1)
-0.0
012*
**
-0.0
012*
**
-0.0
012*
**
-0.0
013*
**
-0.0
011*
**
-0.0
012*
**
(0
.000
19)
(0.0
0019
) (0
.000
19)
(0.0
0026
) (0
.000
19)
(0.0
0019
) Tr
ade
open
ness
(t-1
) 0.
0007
1***
0.
0007
1***
0.
0007
1***
0.
0007
6***
0.
0007
8***
0.
0007
2***
(0.0
0012
) (0
.000
12)
(0.0
0012
) (0
.000
14)
(0.0
0013
) (0
.000
16)
Empl
oym
ent P
rote
ctio
n Le
gisl
atio
n 0.
0056
**
0.00
55**
0.
0048
* 0.
0026
0.
0051
* 0.
0064
**
(0
.002
6)
(0.0
026)
(0
.002
6)
(0.0
034)
(0
.002
7)
(0.0
026)
Pr
opor
tiona
l Rep
rese
ntat
ion
0.02
9**
0.02
9**
0.02
9**
0.00
60
0.03
0**
0.02
2
(0.0
14)
(0.0
14)
(0.0
15)
(0.0
085)
(0
.015
) (0
.016
) St
abili
ty
-0.0
094*
* -0
.009
4**
-0.0
094*
* -0
.010
**
-0.0
092*
* -0
.006
4**
(0
.003
9)
(0.0
039)
(0
.003
9)
(0.0
043)
(0
.004
1)
(0.0
029)
LI
SBO
N
-0
.000
59
-0
.003
5 -0
.000
24
-0.0
0036
(0
.003
1)
(0
.003
3)
(0.0
032)
(0
.003
0)
LISB
ON
_YEA
RS
-0.0
0061
(0
.000
64)
Obs
erva
tions
61
1 61
1 61
1 47
0 58
1 53
8 R
-squ
ared
0.
353
0.35
3 0.
354
0.32
7 0.
311
0.45
3 N
umbe
r of c
ount
ry
28
28
28
28
28
26
Not
e: P
oole
d O
LS w
ith ro
bust
sta
ndar
d er
rors
in p
aren
thes
es; *
** p
<0.0
1, *
* p<
0.05
, * p
<0.1
. The
sam
ple
perio
d is
198
0-20
10 u
nles
s ot
herw
ise
spec
ified
. Tim
e an
d co
untry
fix
ed e
ffec
ts a
re a
lway
s inc
lude
d in
the
mod
el. F
or th
e de
finiti
on o
f the
dum
my
varia
bles
see
text
, Sec
tion
3.
38ECBWorking Paper Series No 1344May 2011
TA
BL
E 9
. The
Lis
bon
Stra
tegy
: lab
our
prod
uctiv
ity g
row
th
Dep
ende
nt v
aria
ble:
labo
ur p
rodu
ctiv
ity g
row
th
(1
) (2
) (3
) (4
) (5
)
19
92-2
010
No
cris
is: 1
980-
2007
La
bour
pro
duct
ivity
gro
wth
(t-1
) 0.
20**
* 0.
19**
* 0.
19**
* 0.
20**
* 0.
20**
*
(0.0
52)
(0.0
53)
(0.0
52)
(0.0
56)
(0.0
57)
Inco
me
per c
apita
(t-1
) -0
.000
87**
* -0
.000
80**
* -0
.000
84**
* -0
.000
91**
* -0
.000
56**
*
(0.0
0016
) (0
.000
16)
(0.0
0016
) (0
.000
26)
(0.0
0015
) Tr
ade
open
ness
(t-1
) 0.
0002
1*
0.00
023*
0.
0002
2*
0.00
023
0.00
026*
(0.0
0013
) (0
.000
13)
(0.0
0013
) (0
.000
14)
(0.0
0015
) W
age
shar
e of
inco
me
(t-1)
0.
0009
2*
0.00
099*
* 0.
0010
**
0.00
14**
0.
0014
***
(0
.000
47)
(0.0
0047
) (0
.000
47)
(0.0
0067
) (0
.000
50)
LISB
ON
-0.0
052*
-0.0
064*
* -0
.002
9
(0
.002
7)
(0
.003
2)
(0.0
027)
LI
SBO
N_Y
EAR
S
-0
.000
97**
(0.0
0045
)
O
bser
vatio
ns
865
865
865
657
757
R-s
quar
ed
0.32
9 0.
332
0.33
2 0.
349
0.16
2 N
umbe
r of c
ount
ry
37
37
37
37
37
Not
e: P
oole
d O
LS w
ith ro
bust
sta
ndar
d er
rors
in p
aren
thes
es; *
** p
<0.0
1, *
* p<
0.05
, * p
<0.1
. The
sam
ple
perio
d is
198
0-20
10 u
nles
s ot
herw
ise
spec
ified
. Tim
e an
d co
untry
fix
ed e
ffec
ts a
re a
lway
s inc
lude
d in
the
mod
el.
For t
he d
efin
ition
of t
he d
umm
y va
riabl
es se
e te
xt, S
ectio
n 3.
39ECB
Working Paper Series No 1344May 2011
TA
BL
E 1
0. T
he L
isbo
n St
rate
gy: e
mpl
oym
ent g
row
th
Dep
ende
nt v
aria
ble:
em
ploy
men
t gro
wth
(1
) (2
) (3
) (4
) (5
)
19
92-2
010
No
cris
is: 1
980-
2007
Em
ploy
men
t gro
wth
(t-1
) 0.
27**
* 0.
27**
* 0.
26**
* 0.
25**
0.
27**
(0.0
91)
(0.0
91)
(0.0
92)
(0.1
1)
(0.1
1)
Trad
e op
enne
ss (t
-1)
0.00
026*
* 0.
0002
7**
0.00
027*
* 0.
0002
5 0.
0002
0
(0.0
0013
) (0
.000
13)
(0.0
0013
) (0
.000
17)
(0.0
0016
) La
bour
forc
e gr
owth
0.
54**
* 0.
54**
* 0.
54**
* 0.
43**
* 0.
52**
*
(0.1
3)
(0.1
3)
(0.1
3)
(0.1
6)
(0.1
3)
Empl
oym
ent s
hare
of i
ncom
e (t-
1)
-0.2
3***
-0
.23*
**
-0.2
3***
-0
.30*
**
-0.2
2***
(0.0
42)
(0.0
42)
(0.0
42)
(0.0
64)
(0.0
45)
Vot
e Sh
are
of G
over
nmen
t Par
ties
0.00
011
0.00
012*
0.
0001
3*
0.00
017*
* 0.
0002
4**
(0
.000
073)
(0
.000
073)
(0
.000
075)
(0
.000
086)
(0
.000
11)
LISB
ON
-0.0
022
-0
.000
25
-0.0
0007
3
(0
.002
2)
(0
.002
6)
(0.0
023)
LI
SBO
N_Y
EAR
S
-0
.000
80**
(0.0
0034
)
O
bser
vatio
ns
831
831
831
636
726
R-s
quar
ed
0.51
1 0.
511
0.51
3 0.
492
0.43
9 N
umbe
r of c
ount
ry
36
36
36
36
36
Not
e: P
oole
d O
LS w
ith ro
bust
sta
ndar
d er
rors
in p
aren
thes
es; *
** p
<0.0
1, *
* p<
0.05
, * p
<0.1
. The
sam
ple
perio
d is
198
0-20
10 u
nles
s ot
herw
ise
spec
ified
. Tim
e an
d co
untry
fix
ed e
ffec
ts a
re a
lway
s inc
lude
d in
the
mod
el.
For t
he d
efin
ition
of t
he d
umm
y va
riabl
es se
e te
xt, S
ectio
n 3.
Work ing PaPer Ser i e Sno 1118 / november 2009
DiScretionary FiScal PolicieS over the cycle
neW eviDence baSeD on the eScb DiSaggregateD aPProach
by Luca Agnello and Jacopo Cimadomo
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