Paper title: Fiscal Performance under Inflation and Inflation Surprises: Evidence from Fiscal Reaction Functions for the Euro Area
Karsten Staehr joint work with Oļegs Tkačevs (Bank of Latvia) ja Katri Urke (Bank of Estonia / TalTech) 

Abstract:

This paper estimates fiscal reaction functions to examine the importance of inflation and inflation surprises for fiscal outcomes in the euro area countries, covering the first 12 countries to join the euro area. The effect of HICP inflation on the primary fiscal balance in per cent of GDP is positive, and statistically and economically significant. The positive effect stems from both the revenue side, particularly direct taxes and indirect taxes, and the expenditure side, particularly primary current expenditures. The effects of HICP inflation on the primary balance and other fiscal outcomes appear in large part to stem from inflation surprises, which are errors in the inflation forecasts available for preparing budgets. The positive effect on the primary fiscal balance does not exhibit noticeable non-linearities.

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in online format, unless announced otherwise. The seminar will last one hour, presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Questions about the seminar can be sent to the seminar coordinator Natalia Levenko: natalia.levenko@taltech.ee.