Fiscal Adjustments and Their Effects During the Transition to EMU

Abstract

The transition phase to EMU has been accompanied by considerable monetary and fiscal consolidation efforts in the EU. This paper analyses this consolidation process and its effects on economic activity in the EU. It is tested to which extent the fiscal retrenchment efforts have depressed or stimulated private spending. In the latter case non-Keynesian effects dominate the traditional Keynesian expenditure effects of government spending, taxation and transfer payments.