—Within this study, we have used the reaction function model of the fiscal policy, in order to analyze the behavior of the governments in the most vulnerable five members of the euro area – Ireland, Greece, Spain, Portugal, Italy, also called PIIGS countries. The stance of the fiscal policy was made with the structural budget balance, variable showing the discretionary intervention of the government to the budget. This variable is obtained by subtracting from the budget balance, the cyclical component of budget balance, which is the result of the automatic stabilizers influence. The methodology used is that of the dynamic panel LSDV type (least squares with dummy variable), in which we included 100 observations for each variable. The results obtained in this study show that the governments of the five economies have promoted pro-cyclical fiscal policies during 1990-2009, that have worsened the budget deficit in periods of economic expansion. Thus, at one percent inflationary gap, the governments of these countries have not responded by promoting a restrictive fiscal policy (ie anti-cyclical), but an expansive ones. In these circumstances, the economic recession has increased their budget deficits recorded periods of economic expansion, increasing the stock of public debt.
—structural budget balance; fiscal policy stance; automatic stabilizers; panel; output gap.
M.C. Marinaş is with the Academy of Economic Studies, Bucharest, Romania, Lecturer PhD at Department of Economics (corresponding author; phone:+40.07126.96.36.199; email: email@example.com)
C. Socol is with the Academy of Economic Studies, Bucharest, Romania, Senior Lecturer PhD at Department of Economics (email: firstname.lastname@example.org)
A.G. Socol is with the Academy of Economic Studies, Bucharest, Romania, Lecturer PhD at Department of Economics (email: email@example.com)
Cite:Yu Zhao, Yu Zhang, and Chunjie Qi, "The Estimation of the Fiscal Policy Stance in the PIIGS Countries," International Journal of Trade, Economics and Finance vol.2, no.2, pp. 120-124, 2011.