The European debt crisis has uncovered serious tension between democratic politics and market pressure in contemporary democracies. This tension arises when governments implement unpopular fiscal consolidation packages in order to raise their macroeconomic credibility among financial investors. Nonetheless, the dominant view in current research is that governments should not find it difficult to balance demands from voters and investors because the economic and political costs of fiscal consolidations are low. This would leave governments with sufficient room to promote fiscal consolidation according to their ideological agenda. This article re‐examines this proposition by studying how the risk of governments to be replaced in office affects the probability and timing of fiscal consolidation policies. The results show that governments associate significant electoral risk with consolidations because electorally vulnerable governments strategically avoid consolidations towards the end of the legislative term in order to minimise electoral punishment. Specifically, the predicted probability of consolidation decreases from 40 per cent after an election to 13 per cent towards the end of the term when the government's margin of victory is small. When the electoral margin is large, the probability of consolidation is roughly stable at around 35 per cent. Electoral concerns are the most important political determinant of consolidations, leaving only a minor role for ideological concerns. Governments, hence, find it more difficult to reconcile political and economic pressures on fiscal policy than previous, influential research implies. The results suggest that existing studies under‐estimate the electoral risk associated with consolidations because they ignore the strategic behaviour that is established in this analysis.

This article investigates fiscal policy responses to the Great Recession in historical perspective. It explores general trends in the frequency, size and composition of fiscal stimulus as well as the impact of government partisanship on fiscal policy outputs during the four international recessions of 1980–1981, 1990–1991, 2001–2002 and 2008–2009. Encompassing 17–23 Organisation for Economic Cooperation and Development (OECD) countries, the analysis calls into question the idea of a general retreat from fiscal policy activism since the early 1980s. The propensity of governments to respond to economic downturns by engaging in fiscal stimulus has increased over time and no secular trend in the size of stimulus measures is observed. At the same time, OECD governments have relied more on tax cuts to stimulate demand in the two recessions of the 2000s than they did in the early 1980s or early 1990s. Regarding government partisanship, no significant direct partisan effects on either the size or the composition of fiscal stimulus is found for any of the four recession episodes. However, the size of the welfare state conditioned the impact of government partisanship in the two recessions of the 2000s, with left‐leaning governments distinctly more prone to engaging in discretionary fiscal stimulus and/or spending increases in large welfare states, but not in small welfare states.

This note introduces the Comparative Independent Fiscal Institutions Dataset which contains information on the institutional characteristics of forty-four independent expert bodies that are mandated to monitor fiscal policy and performance. Based on coding of legislative documents, it describes the institutional design of IFIs in mainly developed countries at different points in time. It comprises indicators and indices on formal political independence, expert proficiency and powers to intervene into the budget process. I report empirical variations between different models of IFIs such as Fiscal Councils and Parliamentary Budget Offices.

Using the Irish experience of public investment and fiscal policy management over the last 25 years, we identify five core lessons. These concern (1) the need for sustained investment effort even when facing tough choices regarding public expenditure, (2) the importance of assessing the adequacy of public capital, (3) counter-cyclicality as an important principle of public investment, (4) crowding-in private investment and (5) the challenge for public investment caused by longer-term challenges such as the necessary climate transition. We also propose two overarching design suggestions for fiscal policy and investment management frameworks.

The 1970s oil shocks sparked high and persistent inflation in advanced economies, also tied to the collapse of the Bretton Woods international monetary system in 1971 that left monetary policy without a stable institutional reference framework. Only in the following decades did a new monetary regime emerge, centered on inflation targeting schemes adopted by independent central banks. Beyond this, other factors affected inflation persistence, namely wage-price spirals rooted in automatic wage adjustment mechanisms, and fiscal policies financed thanks to the regulatory requirement for the central bank to purchase unsold public debt. This article gives a concise analysis of the rationale and provides descriptive evidence of the role these institutional aspects played in the 1970s, suggesting how their evolution has reduced the likelihood of 1970s-style inflationary episodes today. A structural VAR-based counterfactual exercise confirms that absent wage and fiscal pressures inflation persistence would have been significantly lower.

This paper studies the dynamic relationship between economic growth, pollution, and government intervention. To do so, we develop a model that links pollution to the economy’s productive capacity, thereby capturing the feedback loops between economic activity, environmental degradation, and fiscal policy intervention. The model incorporates a pollution-sensitive damage function, taxes, and government spending while analyzing economic growth under different levels of government intervention. Therefore, the main paper’s contributions reveal that economies can achieve favorable outcomes with low or moderate government intervention, and that our results underscore the vital role of pollution mitigation policy in dynamically balancing economic growth with environmental sustainability.

This article examines how subnational fiscal competition over foreign direct investment affects both the siting of new projects and the ability of local governments to raise tax revenue for social spending. We leverage a quasi-natural experiment, an unexpected declaration by the Brazilian Supreme Court in 2017 that reduced states’ ability to offer investors differentiated tax subsidies. Our results show that disadvantaged regions did not see a major shift in investment patterns after the change in investment law. We do not find a consistent relationship between the incentive law change and state revenue generation, but we do find that incentives are associated with less revenue. The results are consistent with arguments that investment incentives exacerbate inequality by reducing states’ capacity to collect revenue while doing little to affect investment location. Our results illustrate that economic agglomeration is difficult to reverse through tax policy and that fiscal federalism often cannot provide strong enough inducements to drive investment into less advantaged regions.

This paper investigates the dynamic effects of environmental and fiscal policy shocks in a New Keynesian dynamic stochastic general equilibrium model featuring price and wage rigidity and a polluting intermediate goods sector. I compare carbon taxes and cap-and-trade systems under abatement cost and government spending shocks, considering three revenue-recycling schemes: lump-sum transfers, labor tax cuts, and consumption tax cuts. Abatement cost shocks reduce output and consumption, with stronger effects under cap-and-trade due to rising permit prices. These effects are mitigated when revenues are used to reduce distortionary taxes, especially consumption taxes. Government spending shocks stimulate output and labor, particularly under lump-sum financing, but their expansionary effects are dampened under cap-and-trade. Nominal rigidities amplify these dynamics. The findings support the double dividend hypothesis and highlight the importance of fiscal design and policy coordination. Carbon taxes, combined with targeted tax reductions, offer superior macroeconomic stabilization in the face of environmental and fiscal shocks.

This paper sets up a small open economy two-agent model and addresses the size of output multiplier of government spending associated with taxation either on constrained households or on unconstrained households. The paper shows that the tax financing rule matters to real resource allocations in the small open economy with flexible prices and equal tax burden at the steady state, contrasting to the finding of Monacelli and Perotti (2011) in closed economies. The output multiplier in open economies is larger than the multiplier in closed economies when taxes are levied on constrained households, while the reverse holds under taxations on unconstrained households.

We build a two-country DSGE model of a monetary union to compare systematically the economic impact of a fiscal stimulus according to different features: domestic or European, public investment or public consumption, unfunded (thanks to grants) or debt-funded, on the core or periphery, and in normal or abnormal (post-ZLB) times. We highlight the importance of spillover wealth effects. Grants play a more important role when it comes to funding public consumption rather than investment, in contrast with the actual use of collective EU funds. A side result permits to assess the opportunity cost of accepting loans.

Recent changes to EU fiscal policy, such as the landmark economic governance reform package passed in early 2024, have established a dense ‘coordination space’ that steers crucial social and economic choices at the EU and national levels. This coordination space, however, departs significantly from its historical predecessors. It largely operates within a hard law framework using finance rather than either rules or soft persuasion and peer review as its main tool of influence. In this coordination space, EU law is less a system of uniform rules underlain with sanctions than a negotiation framework where discretion abounds, and rules are never broken but rather ‘adjusted’. As this paper argues, the significance of the coordination space lies not only in its unique governance model and unclear boundaries but rather its increasing centrality to the governance of the EU. As the paper will explore using the rule of law example, even areas of EU law commonly conceived as necessarily insulated from political bargaining are increasingly drawn into the negotiation logic and instruments of coordination, rendering even more crucial a clear understanding of the trade-offs policy coordination implies. By unpacking 8 core features of policy coordination in the 2020s, the paper is therefore devoted to illuminating an expanding battleground within which EU law is being re-defined.

Building on the success of the Soft Drinks Industry Levy (SDIL), new tax proposals have been considered in the public health policy debate in the UK. To inform such debate, estimates of the potential impacts of alternative tax scenarios are of critical importance. Using a modelling approach, we studied the effects of two tax scenarios: (1) a hypothetical excise tax designed to tax food products included in the Sugar Reduction Programme (SRP), accounting for pack size to reduce the convenience of purchasing larger quantities at once; (2) an ad valorem tax targeting products based on the UK Nutrient Profile Model (NPM). Simulations of scenario 1 show a reduction in sugar purchased of up to 38 %, with the largest decreases observed for sweet confectionery with a tiered tax, similar in structure to the SDIL. Expected food reformulation in scenario 1 led to further decreases in sugar purchased for all categories. In scenario 2, under the assumption that the tax would not affect purchases of healthier products, a 20 % tax on less healthy products would reduce total sugar purchased by 4·3 % to 14·7 % and total energy by 4·7 % to 14·8 %. Despite some limitations and assumptions, our results suggest that new fiscal policy options hold a significant potential for improving diet quality beyond what has been achieved by the SDIL and SRP. An estimated increase in consumer expenditures in both scenarios suggests that attention needs to be paid to potentially regressive effects in the design of any new food taxes.