Category Archives: Research papers

Iain Begg: The EU budget after 2020

Iain Begg: The EU budget after 2020. European Policy Analysis 2017:9. Swedish Institute for European Policy Studies.

The EU will need to begin soon to negotiate a new Multi-annual Financial Framework (MFF), to run from 2021, for the EU budget. The backdrop to the forthcoming negotiations is, self-evidently, very different because of Brexit, but also the many other pressures for reform, both of the budget itself and the Union more generally. This briefing paper explores the direct consequences of Brexit for EU resources as well as the wider ramifications of the departure of an influential Member State. Drawing on various recent contributions to the debate on the future of Europe, such as the European Commission White Paper and Jean-Claude Juncker’s 2017 State of the Union address to the European Parliament, it reviews likely demands for reform of the budget and how they might be accommodated in the next MFF. Three scenarios for the development of the EU’s finances are then set out, covering the status quo, moderate reform and the (admittedly implausible) prospect of a radical reconfiguration of public finances in the EU. Conclusions and predictions about likely outcomes complete the paper.

Download the paper here.


New working paper “Finding the Bottom Line: A Quantitative Model of the EU’s Fiscal Rules and their Compliance” published

A new FIRSTRUN working paper “Finding the Bottom Line: A Quantitative Model of the EU’s Fiscal Rules and their Compliance” has been published today.

The EU’s new fiscal framework is complex. It includes multiple rules and target measures that steer fiscal policy both in the short and long term. While the complexity may be necessary, it is not without problems, as ambiguous fiscal rules are hard to communicate, implement, and enforce. To provide more clarity, this paper uses a dynamic simulation model to quantify the constraint that the rules impose on fiscal policy during consolidations. In particular, the simulator quantifies multiyear adjustment programs that minimize the need of fiscal adjustments while being compliant with the key elements of the framework. By using the European Sovereign Debt Crisis data, the paper shows that the model is consistent with the actual consolidation programs. The paper also finds that revisions of the economic forecasts have a large effect on the simulated adjustments and may increase policy volatility. The positive early 2010 forecasts imply faster minimum adjustments than the weaker ex-post economic data. This feature corresponds well with the recent slowdown of the member states’ fiscal adjustments, and suggests that the policy change is in compliance with the rules.

Author: Tero Kuusi (ETLA)


Policy brief “Foreign fiscal policy spillovers on Austria”

A new policy brief by Thomas Davoine (IHS) has been published in the journal Wirtschaftspolitische Blätter.

The rationale for fiscal policy coordination within the European Union during normal times is weak because cross-country fiscal policy spillovers are found to be small. During crises, spillovers are larger, either because of constraints on monetary policy or because capital markets are well integrated. With a multi-country general equilibrium model assuming perfect capital market integration, I quantify the medium run impact of foreign fiscal actions on Austria. For instance, if Germany is hit by a negative shock and bails out its private sector, the predicted yearly average GDP loss in Austria is 15% of the yearly GDP loss in Germany. Bailouts in smaller European countries lead to weaker spillovers.

Read the full policy brief here



New research paper on cross-country fiscal policy spillovers and capital-skill complementarity published

A new research paper by Thomas Davoine and Matthias Molnar (IHS) has been published:

Thomas Davoine & Matthias Molnar: Cross-country fiscal policy spillovers and capital-skill complementarity in currency unions. IHS Economics Series, Working Paper No. 329.

We investigate cross-country fiscal policy spillovers through the integration of capital markets in a currency union and allow capital use in production to differ across countries. Following empirical evidence, we assume that production exhibits capital-skill complementarity. Using a multi-country overlapping-generations model calibrated for 14 European Union countries, we find that output spillovers are small with standard tax reforms but can be sizeable with large government spending increases financed by taxes: long run output losses in shock-free countries can amount to a quarter of the losses in countries hit by the spending shock. Conditional and temporary relaxing of the EU debt ceiling rule could benefit the Union as a whole.


FIRSTRUN researchers’ articles published in the National Institute Economic Review

The current issue of the National Institute Economic Review* features several articles by FIRSTRUN researchers.

Simon Kirby (NIESR):
Economic Policy and Surveillance in Europe: Introduction

Iain Begg (LSE):
Fiscal and Other Rules in EU Economic Governance: Helpful, Largely Irrelevant or Unenforceable?

Tero Kuusi (Etla):
Does the Structural Budget Balance Guide Fiscal Policy Pro-Cyclically? Evidence from the Finnish Great Depression of the 1990s

Tomáš Domonkos, Filip Ostrihon, Ivana Šikulová, Mária Širanová (IER):
Analysing the Relevance of the MIP Scoreboard’s Indicators


Also see a related article by Jan in’t Veld (DG ECFIN):
A Public Investment Stimulus in Surplus Countries and Its Spillovers in the EA


*) The National Institute Economic Review is the quarterly publication of the National Institute of Economic and Social Research, one of Britain’s oldest and most prestigious independent research organisations.

National Institute Economic Review, founded in 1959, provides a vehicle for publishing and promoting high quality research and debate on economic and related social issues.

National Institute Economic Review, Volume 239, Issue 1, February 2017.

New discussion paper on international correlation of business cycles

A new discussion paper by Paul De Grauwe and Yuemei Ji on international correlation of business cycles has been published by the Centre for Economic Policy Research:

Also see their column “Synchronisation in business cycles: An endogenous explanation” at VoxEU:

A CeLEG Working Paper “One EMU Fiscal Policy for the EURO” published

A preliminary version of LUISS’s deliverable on fiscal policy coordination has been published as a CeLEG Working Paper. It will be reviewed and updated before delivering the final version for the FIRSTRUN project at the end of August 2016.

Alexandre Lucas Cole, Chiara Guerello and Guido Traficante (2016). One EMU Fiscal Policy for the EURO. CeLEG Working Paper Series No. 02/16.

The authors welcome comments and feedback:
Alexandre Lucas Cole:
Chiara Guerello:
Guido Traficante:

Iain Begg, Annette Bongardt, Kalypso Nicolaidis and Francisco Torres on EMU and sustainable integration

This paper considers what will be required to make Economic and Monetary Union (EMU) sustainable following the successive crises of recent years. It starts by laying out the policy benchmark, namely the successive ‘President Reports’ produced by EU institutions. It then suggests three dimensions of sustainable integration relevant to EMU, namely the pursuit of sustainable growth, the need to take into account what we call ‘varieties of modernisation’ and the ‘ownership’ of democratically sustainable reforms. It then evaluates the recasting of EMU governance against the benchmark of sustainable integration.

Iain Begg, Annette Bongardt, Kalypso Nicolaidis & Francisco Torres (2015), EMU and Sustainable Integration. Journal of European Integration, Volume 37, Issue 7, 2015, pages 803-816.

Tero Kuusi: The Finnish Great Depression of the 1990s: Soviet Trade or Home-Made?

This paper reconsiders the reasons for the Finnish Great Depression.The paper argues that during the crisis Finland experienced institutional adjustments that are largely neglected by the current literature, and argues that both financial and tax shocks may have contributed to the crisis more than it has been previously suggested. It is shown by using a general equilibrium model that together these factors can generate a large and widespread fall in key macroeconomic variables, whereas the results suggest that the direct impact of the collapse of the Soviet Union may not have been as large as suggested before.

Kuusi, Tero (23.9.2015). “The Finnish Great Depression of the 1990s: Soviet Trade or Home-Made?”. ETLA Working Papers No 32.