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Table 1 Impact of consolidation on cyclical unemployment

From: Fiscal consolidation and unemployment: does EPL matter?: A look at EU countries

 

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

 

Action-based fiscal policy variables, 13 countries EU, 1980-2009

“Top-down” fiscal policy variables, EU27, 1980-2010

Dependent variable: cyclical unemployment

Budget balance

Revenue

Expenditure

Budget balance

Budget balance

Budget balance

Change in structural balance

Change in structural revenue

Change in structural primary expenditure

Explanatory variables

action-based

action-based

action-based

action-based

action-based

action-based

   

Cyclical unemployment (1 lag)

1.206**

1.220**

1.194**

0.731**

1.217**

1.206**

1.098**

1.094**

1.063**

 

[27.46]

[29.89]

[27.45]

[29.23]

[30.05]

[0.0441]

[19.30]

[19.74]

[15.58]

Cyclical unemployment (2 lags)

−0.609**

−0.611**

−0.607**

 

−0.614**

−0.610**

−0.491**

−0.485**

−0.458**

 

[−17.67]

[−16.80]

[−18.92]

 

[−16.61]

[0.0356]

[−10.63]

[−10.52]

[−8.217]

Fiscal policy variable

0.0796+

0.0184

−0.160*

0.103

 

0.0751

0.142

−0.0368

−0.138*

 

[2.009]

[0.285]

[−2.609]

[1.595]

 

[0.0465]

[1.423]

[−1.073]

[−2.738]

Fiscal policy variable (1 lag)

    

0.0410

0.0132

   
     

[1.072]

[0.0466]

   

Constant

0.307

−0.236*

0.303

0.0972

0.340+

0.308

−0.355**

−0.289**

0.221

 

[1.682]

[−2.910]

[1.694]

[0.455]

[1.801]

[0.182]

[−3.294]

[−2.984]

[0.983]

Observations

353

353

353

366

353

353

546

547

548

R-squared

0.864

0.862

0.865

0.779

0.862

0.864

0.748

0.746

0.740

Number of countries

13

13

13

13

13

13

27

27

27

  1. +, *, ** denote statistical significance at the 10, 5, 1 per cent level respectively. T tests are reported in square brackets.
  2. Specification. All regressions include country and year fixed effects. Estimation method. Action-based fiscal policy: fixed effect panel OLS. Top-down fiscal policy measures: fixed effect panel instrumental variables (the fiscal policy variable is instrumented with its own lag, the lagged output gap, and the lagged government debt/GDP ratio). Standard errors are robust with respect to hetereoschedasticity and non-independence within country clusters.
  3. Legend. Budget balance, action-based.(source: Devries et al., 2011): year-on-year change in government budget balance associated with fiscal consolidation measures; Revenue, action-based.: year-on-year change in government revenues associated with fiscal consolidation measures on the revenue side; Expenditure, action-based.: year-on-year change in government expenditure associated with fiscal consolidation measures on the expenditure side.
  4. Top-down fiscal policy (source: ECFIN AMECO database). Change in structural balance = year-on-year change in cyclically-adjusted government budget balance, information on one-off measures netted out when available; Change in structural revenue = year-on-year change in cyclically-adjusted government revenues, information on one-off measures netted out when available; Change in structural expenditure = year-on-year change in cyclically-adjusted government primary expenditure, information on one-off measures netted out when available.