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

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 m...

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Bibliographic Details
Published in:Oxford economic papers 2016-10, Vol.68 (4), p.1146-1165
Main Authors: Bouthevillain, Carine, Dufrénot, Gilles
Format: Article
Language:English
Subjects:
Capital expenditures
Economic activity
Economics and Finance
Europe
Fiscal policy
Government spending
Human capital
Humanities and Social Sciences
Public expenditure
Studies
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Summary: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.
ISSN:0030-7653
1464-3812
DOI:10.1093/oep/gpw028