Fiscal divergence and business cycle synchronization
Subtitle: irresponsibility is idiosyncratic
By: Zsolt Darvas, Andrew K. Rose, György Szapáry.
Contributors: Rose, Andrew, 1959-; Szapáry, György.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 11580.; Working paper series (National Bureau of Economic Research) -- working paper no. 11580.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 35
Subjects: Fiscal policy -- OECD countries
Description: "Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely.  That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles.  We also find evidence that reduced fiscal deficits increase business cycle synchronization.  The Maastricht 'convergence criteria,' used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction.  They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries' abilities to create idiosyncratic fiscal shocks.  Our empirical results are economically and statistically significant, and robust"--National Bureau of Economic Research web site.
Notes: "August 2005."

Includes bibliographical references (p. 33-34).

Also available in PDF from the NBER world wide web site (www.nber.org).