3 Conclusions
The analysis has uncovered changes in fiscal policy behavior using simple policy rules. In Spain
we find a much stronger response of revenues to changes in government expenditures, while
the relationship between public debt and revenues is weaker than for Germany’s fiscal policy.
Generally, Spain’s fiscal policy deviates in average more strongly from the policy rule specification
than Germany. This may be interpreted as evidence for higher uncertainty in Spain’s fiscal policy.
In both countries we find evidence for a change toward a more sustainable fiscal policy at
the end of the 1990s. This change does only turn out to be permanent in the case of Spain.
Nonetheless, the difference between the two regimes seems to be more drastic in Germany than
in Spain, as we find a drop in the autonomous government revenues combined with an even
stronger response to changes in public debt. Spain exhibits a one-time shift in autonomous
government revenues leaving the general relationship between revenues and debt unchanged.
Hence, we may say that both Germany and Spain underwent a switch in fiscal behavior
in the light of rising debt/output ratios. Interestingly, this change in fiscal behavior exhibits
different characteristics. While Germany tries to stabilize the debt/output ratio by a more
fundamental change in fiscal behavior, Spain embarks on a different strategy by rising the overall
revenue/output ratio. This result is remarkable, as both countries are subject to the same
restrictions imposed by the Stability and Growth Pact. The analysis shows that the way fiscal
authorities deal with these restrictions may well differ across countries.
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