Fiscal policies in EMU countries: strategies and empirical evidence

Purpose – The aim of the paper is to evaluate fiscal adjustments that have occurred in the Economicand Monetary Union (EMU) countries in the last 35 years, and their consequences on the economicgrowth process by using the mean group (MG) estimators.Design/methodology/approach – Our emphasis is on the effects of different composition of fiscalstimuli and consolidations. We compare the effects on the economic growth rate of differentcompositions of major fiscal changes. We use a cyclically adjusted value of the fiscal variables to leaveaside variations of the fiscal variables induced by business cycle fluctuations.Findings – Our empirical research of the effects of large changes in fiscal policy, both in case of a fiscalconsolidation and of fiscal stimulus in the 18EMUcountries from 1980 to 2015, shows that adjustmentsby cutting current expenditures, rather than by tax increases are more likely to boost economic growth.It also shows that cuts of investment expenditures may reduce GDP growth. During fiscal stimulusepisodes, tax cuts and public investments are more likely to increase growth than current publicexpenditure.Originality/value – This is the first study devoted to the EMU countries. It should be underlined thatthe results obtained as for EMU countries are not necessarily applicable to other countries, as thedifferent government size as well as different market institutions may influence the results.