Study on ‘Do EU Fiscal Rules Support or Hinder Counter-Cyclical Fiscal Policy?

Our research was published in the Journal of International Money and Finance. It investigates the notorious tendency to run pro instead of counter-cyclical fiscal policies.  It concludes that (i) uncertainty about the cycle in real time is not the main reason for running pro-cyclical fiscal policies; interventions remain ill-timed when observable and politically meaningful indicators of the cycle are used; (ii) EU fiscal rules help law makers mitigate the risk of running pro-cyclical fiscal policy; (iii) fiscal policies tend to stabilise output during major crisis episodes.