Automatic stabilizers vs. discretionary fiscal policy in Euro area countries

Within this study, we have used the reaction function model of the fiscal policy to study the behaviour of the governments in the Eurozoneʹs countries. The analysis methodology was that of the dynamic panel, in which we have included the first twelve countries of the Eurozone. The studied period was 1990 to 2009, and the used data series were those of the European Commission (2009). The estimates made on the basis of three models have proved the promotion of an anti-cyclic discretionary fiscal policy, which is symmetrical enough, depending on the phases of the business cycle. Moreover, a level of the automatic stabilizers has also resulted (measured by means of the cyclical budget balance), which is very close to the conventional one that is mentioned in the economic literature. Although the fiscal policy within the Eurozone stabilized the output gaps during the analyzed period, the current manoeuvre limits are quite low.