Fiscal space on the Eurozone peripery: The case of Spain

Arbeitspapier

On the one hand, every official document about fiscal policy in Spain, and most orthodox academic papers argue that Spain has no "fiscal space" and that it should apply resolute actions to assure budget consolidation. On the other hand, Spain also had the second highest unemployment rate in the Eurozone in 2015: 21% of the active population. A rapid decline in that rate would require a higher fiscal impulse to sustain higher economic growth rates. This IMK working paper addresses this dilemma, presenting two alternative scenarios for the next years analyzing their impact on unemployment and fiscal sustainability. The first scenario represents a firm commitment to budget consolidation, while in the second the government uses the fiscal instrument to stimulate domestic demand and ensures a GDP growth rate target. The second scenario is based on an application of an "imperfect" balanced budget multiplier, proposing a combination of discretionary increases in both public expenditure and revenue. The main conclusion is that the end of fiscal austerity is feasible and perfectly compatible with fiscal finances sustainability for Spain. In addition some more general topics are discussed: the difference between the "functional finance" and the "sound finance" approaches to fiscal policy; the possibility of a Balanced Budget expansion; a discussion of the concept of "fiscal space"; and the inadequacy of European fiscal rules.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMK Working Paper ; No. 176

Classification and Topics

• Classification: Wirtschaft ; Policy Objectives; Policy Designs and Consistency; Policy Coordination ; Fiscal Policy
• Subject: Fiscal Policy ; Fiscal Space ; Functional Finance ; Balance Budget Multiplier ; Spain

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Uxó González, Jorge ; Álvarez Peralta, Nacho ; Febrero, Eladio
• Event: Veröffentlichung
• (who): Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)
• (where): Düsseldorf
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/162232
• URN: urn:nbn:de:101:1-201703015235
• Last update: 10.03.2025, 11:44 AM CET