This report provides a brief overview of the project and summarises its most policy-relevant results. It also describes new methods and models developed within the project.
The results are structured around the following six themes: fiscal spillovers, risk-sharing, real-time uncertainty, fiscal rules, political economy and institutional challenges and tools for policy analysis.
By fiscal spillovers, we mean the influence of national fiscal policy measures on other countries. In addition to spillovers from changes in the level of government spending or taxation, we consider spillovers from “structural fiscal policies”, such as pension reforms, which influence the supply side of the economy.
Cross-country risk-sharing distributes the effects of economic shocks across countries, thereby disconnecting domestic consumption from domestic income. We present new results related to both private and public risk-sharing mechanisms in the Economic and Monetary Union (EMU) and compare risk-sharing in EMU to risk-sharing across states in the United States.
Real-time uncertainty refers to the fact that we often possess imperfect knowledge of the current state of the economy. It is particularly difficult to distinguish between the economic cycle and trend. It turns out that this has major implications for fiscal policy.
As for the fiscal rules, the project has focused on the enhanced Stability and Growth Pact. We have studied, for instance, how real-time uncertainty affects the workings of the fiscal rules.
The project has also examined the political economy of fiscal coordination and the related institutional challenges. Our work on this topic is partly based on the reports and the flows of information between the EU and the member countries as well as case studies of member state implementation of EU fiscal coordination.
Finally, the project has developed new quantitative economic models (and extended existing models), which should be helpful in designing better fiscal policies and coordination mechanisms in the future.
FIRSTRUN deliverables and research reports can be downloaded at http://www.firstrun.eu/research/.