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Philip Muggenthaler
Economics
- Division
Fiscal Policies
- Current Position
-
Economist
- Fields of interest
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Public Economics,Macroeconomics and Monetary Economics
- 30 October 2024
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 7, 2024Details
- Abstract
- This box provides an overview of fiscal developments in 2024 – as reflected in revisions in fiscal positions across rounds of Eurosystem and ECB staff macroeconomic projections. For the euro area as a whole and in groups of countries with both high and low debt ratios, the cyclically adjusted fiscal positions projected for 2024 have gradually weakened since the September 2023 projection round. Overall, fiscal positions remain weaker in the high-debt country group than in the low-debt group. Considerable risks continue to surround fiscal positions in the short run and beyond, with mixed signals regarding the 2024 outcome. For 2025, draft budgetary plans provide for some consolidation so as, among other reasons, to comply with the requirements of the revised EU economic governance framework.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
- 25 April 2024
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2024Details
- Abstract
- Following the European Commission’s legislative proposals of April 2023, the ECOFIN Council reached an agreement on the reform of the fiscal rules underpinning the EU Stability and Growth Pact (SGP) on 20 December 2023. This box provides a preliminary assessment of the potential macroeconomic effects of the EU fiscal framework reform over the horizon of the March 2024 ECB staff macroeconomic projections for the euro area. In light of the agreement reached by the EU co-legislators on 10 February 2024, the box concludes that adhering to the requirements under the revised fiscal framework would imply some additional fiscal tightening over 2025-26, which, in turn, may entail some downside risks to growth, although these are rather small. The inflation impact is assessed as being limited.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
O40 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 24 October 2023
- OCCASIONAL PAPER SERIES - No. 332Details
- Abstract
- The recent spike in inflation, unprecedented in the history of the Economic and Monetary Union (EMU), has had major consequences for all areas of the economy, including public finances. This paper aims to provide a detailed assessment of the effects of high inflation on fiscal accounts in the euro area. Relying on the wealth of expertise in the Eurosystem – within the Working Group on Public Finance – it documents spending indexation arrangements in all euro area countries. Thanks to this knowledge, the ECB’s fiscal projection platform, which is the primary evaluation tool for this study, establishes a realistic link between prices and fiscal variables. The results of this paper bring into question the conventional wisdom on the overall positive effects of inflation on fiscal accounts. Indeed, the simulations point to adverse effects from the recent inflation surge, mainly triggered by an external supply shock, on budget balances during 2022-24. This is even without taking into account the negative impact of inflation on the real economy, mainly through monetary policy tightening. The analysis also points to the important role of the denominator effect for debt-to-GDP ratios, which may fall even in the absence of benefits for the budget balance. Finally, the analysis reveals a high degree of heterogeneity across countries.
- JEL Code
- C3 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- 13 February 2023
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 2, 2023Details
- Abstract
- This article assesses the relation between fiscal policy and inflation, with a focus on the euro area and the period 2022-25 (corresponding to the horizon of the December 2022 Eurosystem staff macroeconomic projections for the euro area). Overall, the article concludes that, even without the discretionary policy response to the high energy prices and inflation (assessed at close to 2% of GDP over the 2022-23 period), the euro area budget balance could be negatively affected by the current high inflation beyond the short term. This is primarily explained by the nature of the inflation shock, which has a substantial external, energy-driven component, and its large size. Such factors lead to more limited gains on the revenue side of the budget, which in turn can easily be outweighed in the following years by extra spending pressures. In terms of the euro area debt-to-GDP ratio, the analysis shows that a negative impact on economic activity from an adverse supply shock, given the monetary policy reaction, may outweigh the positive initial impact of higher inflation through the denominator effect. The discretionary fiscal policy measures that have so far been adopted to shield the economy from the impact of high inflation in turn lower the inflationary pressures over the 2022-23 period, with a broad estimated reversal of the effect afterwards. The degree to which these fiscal measures will influence price dynamics is highly uncertain.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
- 2 August 2022
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 5, 2022Details
- Abstract
- This box provides a quantitative analysis of the euro area fiscal support measures introduced in response to the war in Ukraine, including measures to compensate for high energy prices, and provides estimates for the impact of this support on growth and inflation over the period 2022-24.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
J3 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs
H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
- 14 March 2022
- WORKING PAPER SERIES - No. 2656Details
- Abstract
- Regarding a prospective reform of the European Stability and Growth Pact (SGP) it seems rather consensual that a simplified framework should take account of the prevailing macroeconomic context and enhance the balancing of sustainability and stabilisation considerations. This paper provides simulation analysis for the euro area and individual countries with a view to assessing the short- and longer-term budgetary and macroeconomic implications of a move to a two-tier system with an expenditure growth rule as single operational indicator linked to a debt anchor. Compared to the status quo, our analysis suggests that expenditure growth targets which take account of the ECB’s symmetric 2% inflation target can improve the cyclical properties of the framework. Fiscal policy would be tighter when inflation is above the target but looser when inflation is below target, resulting in a better synchronisation of fiscal and monetary policies. Providing additional fiscal accommodation in a low inflation environment would enable monetary policy to operate more effectively especially in the vicinity of the effective lower bound. The link to a longer-term debt anchor at the same time ensures a transition towards the Treaty’s debt reference level.
- JEL Code
- E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
H50 : Public Economics→National Government Expenditures and Related Policies→General
H60 : Public Economics→National Budget, Deficit, and Debt→General
- 13 January 2022
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 8, 2021Details
- Abstract
- This box discusses the fiscal policy recommendations addressed to the euro area countries against the background of the coronavirus (COVID-19) crisis.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H6 : Public Economics→National Budget, Deficit, and Debt
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 273Details
- Abstract
- The last review of the ECB’s monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular in an environment of structurally low interest rates and persistent downside risks to price stability. This debate has been further intensified by the economic impact of the coronavirus (COVID-19) pandemic. In the euro area, the unique architecture of a monetary union consisting of sovereign Member States, with cross-country heterogeneities and weaknesses in its overall construction, poses important challenges. Against this background, this report revisits monetary-fiscal policy interactions in the euro area from a monetary policy perspective and with a focus on the ramifications for price stability and maintaining central bank independence and credibility. The report consists of three parts. The first chapter presents a conceptual framework for thinking about monetary-fiscal policy interactions, thereby setting the stage for a discussion of specifically euro area aspects and challenges in subsequent parts of the report. In particular, it reviews the main ingredients of the pre-global financial crisis consensus on monetary-fiscal policy interactions and addresses significant new insights and refinements which have gained prominence since 2003. In doing so, the chapter distinguishes between general conceptual aspects – i.e. those aspects that pertain to an environment characterised by a single central bank and a single fiscal authority and those aspects that pertain to an environment characterised by a single central bank and many fiscal authorities (a multi-country monetary union). ...
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
- 5 August 2021
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 5, 2021Details
- Abstract
- This box reports evidence on the heterogeneous impact of the pandemic on euro area countries. It shows that the different impact on activity was largely due to different containment measures, heterogenous sectoral compositions and institutions. Economies with a larger share of high-contact services sectors were hit the hardest, even when lockdown measures eased over time. All euro area governments implemented fiscal support measures, albeit different in size, to alleviate the health and economic consequences of the pandemic. This led to divergence in public finances in 2020 compared with the pre-crisis period. Looking ahead, the Next Generation EU programme is expected to help reduce the economic divergence observed in the euro area in 2020 and foster a more inclusive recovery.
- JEL Code
- E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 23 September 2020
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 6, 2020Details
- Abstract
- Fiscal policy is playing a key role in stemming the economic fallout from the coronavirus (COVID-19) pandemic. In addition to the discretionary fiscal policy measures employed by governments, automatic fiscal stabilisers play an important role in cushioning the economic downturn. This article shows that automatic fiscal stabilisers are generally sizeable in the euro area, but vary significantly across Member States. However, their effectiveness may be more limited at the current juncture, given the nature of the COVID-19 crisis and the high uncertainty surrounding its effects. This provides a rationale for a stronger role of discretionary fiscal policy at national and European level. Over the medium term, fiscal policies could increasingly make use of quasi-automatic fiscal instruments that provide additional timely, targeted and temporary macroeconomic stabilisation for the euro area. Careful consideration should be given to the design of such instruments over the business cycle, their economic efficiency, and to the need for building fiscal buffers in good times.
- JEL Code
- H12 : Public Economics→Structure and Scope of Government→Crisis Management
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
- 2023
- SUERF Policy Note, 332
- 2022
- VOXEU.org