The Gains from Early Intervention in Europe: Fiscal Surveillance and Fiscal Planning Using Cash Data

30 Pages Posted: 19 Jul 2010

See all articles by Andrew J. Hughes Hallett

Andrew J. Hughes Hallett

George Mason University - School of Policy, Government, and International Affairs

Moritz Kuhn

University of Bonn

Thomas Warmedinger

European Central Bank (ECB)

Date Written: June 17, 2010

Abstract

This paper does two things. First it examines the use of real time inter-annual cash data and the role of early interventions for improving the monitoring of national fiscal policies and the correction of fiscal indiscipline. Early warnings are important because they allow us to spread the necessary adjustments over time. Examples from Germany and Italy show that large corrections are often necessary early on to make adjustments later on acceptable and to keep debt ratios from escalating. There is a credibility issue here; we find the difference between front-loaded and back-loaded adjustment schemes is likely to be vital for the time consistency of fiscal policymaking. Second, without early interventions, the later deficit reductions typically double in size – meaning governments become subject to the excessive deficit procedure and significant improvement tests more often. Thus the budget savings from early intervention and the use of cash data are significant; in our examples they are similar in size to the operating budget of the department of housing and urban development in Germany. Similar results apply in other Eurozone countries.

Keywords: fiscal surveillance, early warning, cash data, additive vs. slope adjustments, fiscal credibility

JEL Classification: E62, H50, H68

Suggested Citation

Hughes Hallett, Andrew and Kuhn, Moritz and Warmedinger, Thomas, The Gains from Early Intervention in Europe: Fiscal Surveillance and Fiscal Planning Using Cash Data (June 17, 2010). ECB Working Paper No. 1220, Available at SSRN: https://ssrn.com/abstract=1626278

Andrew Hughes Hallett (Contact Author)

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

Moritz Kuhn

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Thomas Warmedinger

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
449
PlumX Metrics