Journal Article

Fiscal policies enhancing growth in Europe: does one size fit all?

Carine Bouthevillain and Gilles Dufrénot

in Oxford Economic Papers

Volume 68, issue 4, pages 1146-1165
Published in print October 2016 | ISSN: 0030-7653
Published online June 2016 | e-ISSN: 1464-3812 | DOI: https://dx.doi.org/10.1093/oep/gpw028
Fiscal policies enhancing growth in Europe: does one size fit all?

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  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • Fiscal Policies and Behaviour of Economic Agents

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This paper provides evidence of various reactions of growth rates to changes in the composition of taxes and public spending in Europe. We use a quantile estimator to allow different slopes of fiscal variables, across countries and years. We find that sovereign spending should be encouraged in the medium term if growth is low, but the medium-term effect on the economic activity is not positive in situations of moderate or rapid growth. Human capital expenditure jeopardizes growth, if a country belongs to the group of under-performers, while the initial costs are progressively transformed into growth-friendly factors for the group of over-achievers. Welfare expenditure is unproductive in the medium term, but only above a given growth threshold. Higher direct taxes are more harmful for low-growth countries, since their effects are more persistent than for countries with high growth. Our findings are contrary the idea that one size fits all.

Keywords: E62; H30

Journal Article.  9036 words. 

Subjects: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; Fiscal Policies and Behaviour of Economic Agents

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