Investigating heterogeneity in European fiscal behaviours

The aim of this paper is to analyse the heterogeneity in fiscal behaviours in the euro zone. The fiscal behaviours are analysed according to a new specification in which the cyclically adjusted primary balance reacts to the change in the output gap, the public debt ratio, the inflation rate and the interest rate. Our study covers 12 countries in the euro zone during 1999–2010 using annual data from the AMECO database. We use the quantile regression methodology to test the fiscal rule. Our findings show the persistence in fiscal behaviour and counter?cyclical fiscal policy. The results also show that fiscal responses differ according to the chosen quantile. In particular, a high fiscal indicator is associated with a debt?stabilisation motive and concern about inflation. A shock analysis indicates how the fiscal dispersion could be changed according to the nature of the shock. The results of this paper are useful for understanding fiscal coordination and for improving the European fiscal framework.