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Fiscal space and low interest rates a eurozone perspective

Fiscal space and low interest: A Eurozone perspective

The European Commission has just needed a fiscal stance that’s more supportive of the recovery and of monetary policy in the Eurozone. This column argues that the case is strong for spending now on investment and other targeted programmes supporting growth and employment. However, fiscal space is heterogeneously distributed over the Eurozone, with some countries in a position to exploit a clear margin, and others having to pursue a far more prudent approach of gradual debt unwinding. A common stabilisation capacity would help for managing shocks that can’t be absorbed by national stabilisers alone.

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Fiscal space, government spending, and tax rate cyclicality patterns

Fiscal space, government-spending, and tax-rate cyclicality patterns: A cross-country comparison, 1960-2016

The upward trajectory of policy interest levels in OECD countries will impose growing fiscal challenges, testing their fiscal convenience of countercyclical policy and therefore their resilience. This column compares fiscal cyclicality across countries and identifies measures of fiscal space. The results reveal a mixed fiscal scenery, where over fifty percent of countries are characterised by limited fiscal space, and fiscal policy is either procyclical or acyclical.