have euro area and eu economic governance worked? just the … · 2011. 5. 27. · by demosthenes...

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: [email protected]

and [email protected]

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

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ISSN 1725-2806 (online)

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Working Paper Series No 1344May 2011

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

4ECBWorking Paper Series No 1344May 2011

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.


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


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.

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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

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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


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


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


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.


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


(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.


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


(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


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


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.


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


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

have euro area and eu economic governance worked? just the … · 2011. 5. 27. · by demosthenes...

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