Effects of Fiscal Policy Shocks in the Euro Area (Lessons Learned from Fiscal Consolidation)
Effects of Fiscal Policy Shocks in the Euro Area (Lessons Learned from Fiscal Consolidation)

Author(s): Rajmund Mirdala
Subject(s): Economy, Accounting - Business Administration
Published by: ASERS Publishing
Keywords: fiscal; policy; shock; fiscal consolidation;
Summary/Abstract: European Union member countries are currently exposed to negative implications of the economic and debt crisis. Questions associated with disputable implications of fiscal incentives seem to becontrary to the crucial need of the effective fiscal consolidation that is necessary to reduce excessivefiscal deficits and high sovereign debts. As a result, governments tend to reduce public expendituresand raise taxes during the periods lagging recession and thus cooling down economies. However, an appropriate composition of fiscal incentives without direct negative effect on the public budget and its revenue and expenditure sides may help to reduce negative budgetary pressures through increased tax capacity of the economy followed by stronger growth of real output. While challenges addressed to the fiscal policy and its anti-cyclical potential rose steadily but not desperately since the beginning of the economic crisis, the call for fiscal consolidation became urgent almost immediately and this need significantly strengthen after the debt crisis contagion flooded Europe.

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