01 Mar 2015 - 28 Feb 2018
Macroeconomics and macroeconomic policy, Financial sector, Europe, economic modelling, fiscal policy, macroeconomics, public finance

FIRSTRUN - Fiscal Rules and Strategies under Externalities and Uncertainties

03.2015 - 02.2018

Project description and general objectives of the project:

The FIRSTRUN project advances the theoretical and practical debates on the effective mechanisms of fiscal policy coordination. It analyzes the very reason why fiscal policy coordination may be needed in the first place, namely cross-country externalities (spillovers) related to national fiscal policies. Specifically, it identifies different types of spillover effects, investigates how they work in the EU and in the EMU, and analyses whether they work in the same fashion under different states of the economy and over the short and the long run. The project describes different forms that fiscal policy coordination can take in practice, e.g. ex-ante coordination and risk-sharing, and provides a critical assessment of the mechanisms already put in place. The FIRSTRUN project provides new tools for fiscal policy design by incorporating the new EU fiscal rules regarding e.g. government debt and deficit into applied models for fiscal policy evaluation. The tools can be used to support the decision makers in the implementation of the enhanced EU economic governance. FIRSTRUN also investigates the political economy of fiscal cooperation, for instance, the difficult inter-play between domestic political pressures and EU level priorities as well concerns about legitimation. By shedding light on the character of the governance framework for fiscal coordination, FIRSTRUN will highlight the features that work well or badly and provide insights that the EU level can exploit in its surveillance and advisory roles.

The FIRSTRUN project provides theoretical and econometric analysis of the reasons for having fiscal policy coordination in the EU and the different forms that it can take. In addition, it develops a new conceptual framework for understanding the practicalities of fiscal coordination and the disciplines it requires of participating governments. Project focuses on fiscal spillovers. Expert team take into account the interaction between fiscal and monetary policies, or the monetary-fiscal policy mix. Project distinguishes between ex-ante coordination of fiscal policies, such as debt and deficit rules, and ex-post mitigation of shocks in the form of various risk-sharing mechanisms. In addition, various macroprudential policies are considered. When analysing the implementation of fiscal coordination, the potential problems related to (the lack of) credibility and legitimacy are considered. When assessing the effectiveness of the existing coordination mechanisms in ensuring stabilization and sustainability, we will take into account population ageing and uncertainty about e.g. future tax revenues.


Project Structure and Involvement of CASE:

Project is divided into 8 work packages. CASE is involved in the following work packages:

  • WP 1 Fiscal policy coordination and cross country spillover effects, namely D1.7 Policy brief highlighting the key implications of the FIRSTRUN results (CEPS and ETLA + all other partners)
  • WP 2 Ex ante policy coordination: the new EU fiscal rules, namely D2.6 Working paper on the credibility of EU fiscal instruments (CASE major task)
  • WP 6 Governance, institutional mechanisms for fiscal policy coordination and their legitimation, namely D6.5 Paper on in-depth case studies of the experience of fiscal coordination in selected countries (LSE, CASE, IER)
  • WP 7 Dissemination and Outreach, namely organizing Second Stakeholder Forum in Warzaw (CASE and ETLA)
  • WP 8 Scientific coordination and project management


Project Output:

  • surveys: literature reviews, analysis of policy and stakeholder consultations, secondary data analysis; qualitative methods (interviews);
  • data collection, synthesis of data, quantitative and economic analyses;
  • case studies;
  • country-reports;
  • drafting policy recommendations for economic, political and public stakeholder;
  • raising awareness and informing the stakeholders and broader audiences of the project by means of interactive project website, the electronic newsletter and social media, including Twitter accounts of the project and the researchers12 project newsletters;
  • 2 Stakeholder Forums, scientific conferences, seminars, workshops
  • Policy Briefs;
  • all deliverables drafted in English.

 

On March 24, 2017, CASE hosted the FIRSTRUN Workshop on Fiscal Adjustment and Stabilization Policies in the EU


Contracting institution: EC DG RTD

Sponsoring program and/or organization: Horizon 2020 (DG RTD)

Leader of the consorcium: ETLA - The Research Institute of the Finnish Economy  (Finland)

Partners:

IHS – Institute for Advanced Studies (Austria)
LSE - London School of Economics (GB)
LUISS University (Italy)
IER (Slovakia)
CEPS - Centre for European Policy Studies (Belgium)
NIESR - National Institute of Economic and Social Research (GB)