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Proponents of a basic income (BI) claim that it could bring significant reductions in financial poverty, on top of many other benefits, including greatly reduced administrative complexity and cost. Using microsimulation analysis in a comparative two-country setting, we show that the potential poverty-reducing impact of BI strongly depends on exactly how and where it is implemented. Implementing a BI requires far more choices than advocates seem to realize. The level at which the BI is set matters, but its exact specification matters even more. Which parts of the existing tax-benefit system are maintained, and which parts are abolished, modified or replaced? The impact of a BI, be it a low or a high one, thus strongly depends on the characteristics of the system that it is (partially) replacing or complementing, as well as the socio-economic context in which it is introduced. Some versions of BI could potentially help to reduce poverty but always at a significant cost and with substantial sections of the population incurring significant losses, which matters for political feasibility. A partial basic income complementing existing provisions appears to make more potential sense than a full basic income replacing them. The simplicity of BI, however, tends to be vastly overstated.

We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loanlevel data that covers all sectors in the economy. We find that except for the manufacturing sector, monetary stimulus itself did not favor state-owned enterprises (SOEs) over non-SOEs in credit access. Infrastructure investment driven by nonmonetary factors, however, enhanced the monetary transmission to bank credit allocated to local government financing vehicles in infrastructure and at the same time weakened the impacts of monetary stimulus on bank credit to non-SOEs in sectors other than infrastructure.

Increasing attention has been paid to the potential for demand-side policies to stimulate use of broadband networks. Such policies form part of the increasing digitalisation of the economy and wider society. This is an area where governments are also facing challenges in their efforts to maximise the efficiency and effectiveness of their policies. The paper sheds light on the impact that the transition towards digital has had on demand-side policies supporting the adoption of broadband and digital technologies by SMEs, and draws out the implications for policy, using a case study of Wales in the UK over a ten-year period. It shows that digitalisation has seen policy mechanisms and messages evolving as policy makers have created a more integrated and multi-channel approach to the delivery of advisory support to SMEs, but that the emergence of multiple types of actors (large digital platform businesses) and ongoing digitalisation are adding complexity to policies and their interaction with other forms of public and private business support., Highlights • Examines demand-side advisory policies for SMEs through a longitudinal case-study of Wales. • Develops a novel framework to study policy mechanisms, messages, actors and digital transition in SME advisory policies. • Identifies the emergence of greater complexity in demand-side policy design and delivery, and SME needs. • Shows the emergence of blended models of online and offline SME advisory policies and the emergence of new policy messages. • Provides policy implications focusing on how policymakers might respond to digital transition in demand-side policies.

We study how European climate and energy policy targets affect different member states and households of different income quintiles within the member states. We find that renewable energy targets in power generation, by reducing eu ets permit prices, may make net permit exporters worse off and net permit importers better off. This effect appears to dominate the effciency cost of increasing the share of energy provided by renewable energy sources in the countries that adopt such targets. While an increase in prices for energy commodities, which is entailed by the policies in question, affects households in low income quintiles the most, recycling revenues from climate policy allows governments to compensate them for the losses. If renewable targets reduce the revenues from ets permit auctions, member states with large allocations of auctionable permits will lose some of the ability to do so.

Germany has an ambitious climate target for 2030 that cannot be achieved without reducing the high share of coal in power generation. In the face of this, the country has set up a commission to phase out coal. A UK-style carbon price floor is one of the options being considered. Yet implementing such a policy comes with important risks related to the following two aspects: (1) the price level necessary to reduce emissions to reach the 2030 climate target; and (2) the waterbed effect that arises from such a policy under the EU Emissions Trading Scheme (ETS) cap. In this paper, we quantify these risks using the numerical electricity market model LIMES-EU, and consider their implications as well as different options for dealing with them. Our results show that under baseline assumptions a carbon price floor of around 33 €/tCO2 would be sufficient to reach the 2030 target. Under unfavourable conditions, an appropriate price floor may be nearly twice as high (57 €/tCO2). The waterbed effect and related risks for the EU ETS could be reduced substantially in the mid-term (2030) through the recently introduced cancellation of allowances through the Market Stability Reserve (MSR), or through a larger coalition of countries. Germany could even fully alleviate the waterbed effect by cancelling 1.1 GtCO2 of certificates. In the long-term (until 2050), emission reductions leading up to 2030 would be almost completely (91%) offset at the EU level. Accordingly, it is essential that the national price initiates a policy sequence that leads to the EU level.

This paper investigates the relationship linking investment (capital stock) and structural policies. Using a panel of 32 OECD countries from 1985 to 2013, we show that more stringent product and labour market regulations are associated with less investment (lower capital stock). The paper also sheds light on the existence of non-linear effects of product and labour market regulation on the capital stock. Several alternative testing methods show that the negative influence of product and labour market regulation is considerably stronger at higher levels. The paper uncovers important policy interactions between product and labour market policies. Higher levels of product market regulations (covering state control, barriers to entrepreneurship and barriers to trade and investment) tend to amplify the negative relationships between product and labour market regulations and the capital stock. Equally important is the finding that the rule of law and the quality of (legal) institutions alters the overall impact of regulations on capital deepening: better institutions reduce the negative effect of more stringent product and labour market regulations on the capital stock, possibly through the reduction of uncertainty as regards the protection of property rights.

Policy-makers apply multiple policy instruments simultaneously in the climate and energy policy field at both EU and Member State levels. This creates interactions between instruments that can be complementary and synergistic but also conflicting. This article focuses on the interactions of climate policy instruments and their impact on biomass use. The objectives are to examine interactions of the EU Emissions Trading System (EU ETS) with the main national climate policy instruments and to identify the influence of these on biomass use. The work draws experiences from seven EU countries (Austria, Finland, Germany, the Netherlands, Poland, Sweden and the United Kingdom), with a special focus on Finland and Sweden. The analysis explores the effects of policy interactions and is based on an examination of literature, and interviews with biomass experts in research, industry and policy spheres. Results indicate that the combined effects of climate policy instruments have a tangible impact on biomass use, whereas the causal links to the EU ETS are difficult to assess separately. Policy impacts found include increased competition for biomass resources, changes in fuel mixes and a contribution to upward pressure on wood prices. Differences in these effects are linked to differing national policy mixes and energy-carrier portfolios - an example being the relative differences in the importance of peat to the energy mix in Finland and Sweden. Analysis and comparison of the effects in the selected countries can yield insight on how to improve the design of policy interventions that impact biomass use. This study confirms the importance of identifying interactions between policy instruments so as to recognise - and manage - synergies and conflicts. The development of more synergistic and coordinated policy instrument mixes would also be beneficial for the bioenergy field.

In this paper we analyze the concept of interactions between policy instruments addressing environmental, energy and climate change issues. Although discussion on such policies has been taking place for almost two decades, their interactions are not so sufficiently explored. Initially, we refer to literature on various types of interactions and we classify them. Furthermore, we construct a qualitative method that can assist policymakers in selecting an optimal policy mix. This method breaks down into numerous components, the areas where different policies interact, and facilitates the unveiling of potential overlaps and complementarities. These areas consist of categories as measure identification, objectives, scope, market arrangements, market flexibility, financing, technological parameters, timing, compliance parameters and institutional setup. In addition, it renders the possibility of combining different options and design elements of policies. Furthermore, a list of various criteria serves as an assessment tool for interactions, where a weighing factor and uncertainty parameters have been added, in order to produce an aggregate indicator of the ex-ante analysis of the policy mix selected. Through this method, we present a complete framework of discernment of diverse forms of environmental policy instruments.

In this paper we analyze policy interactions between two innovative climate and energy policy instruments, namely White Certificates (WhC) and Joint Implementation (JI) that target at energy efficiency improvement and reductions of Greenhouse Gas (GHG) emissions. We have selected The Netherlands and Bulgaria as a case study given that the former has a cumulated experience in energy efficiency policies and the latter for a growing potential in JI projects as a host country. Based on a method of analyzing policy interactions, we demonstrate how a possible design of such a scheme can take place and how it should function. A couple of parameters that deserve attention are a baseline definition and a conversion rate for credits. Our basic finding is that an integrated scheme is complementary and can assist substantially in achieving Dutch national United Nations Framework Convention on Climate Change (UNFCCC) Kyoto Protocol targets. Dutch electricity and gas suppliers (parties that receive energy efficiency obligations) can implement energy efficiency projects domestically and in other countries, hence reducing total abatement costs. Furthermore, such a scheme can stimulate further energy efficiency actions from other stakeholders participating in energy markets. Based on an ex-ante assessment, a carefully designed hybrid WhC and JI scheme appears to be effective in terms of targets, efficient, generating positive impacts on markets and society, while uncertain in stimulating innovation.

Recent European energy policies like the Energy Efficiency Directive (EED) and the EcoDesign Directive (EDD) set new targets to increase energy efficiency. Article 7 of EED implies that EU Member States set up energy savings amounting to 1.5 % of the annual energy sales to final customers from 2014 to 2020. To comply with this requirement the level of French White Certificate (WC) obligation should double in the next period. Moreover, the EDD directive sets the minimum energy efficiency level only for a limited number of equipment such as boilers, heat pumps and water heater. In this regard, the WC scheme deemed savings must be revised in order to comply with the European calculation rules of EED's Annex 5. Certain adjustments must be made to the French WC which has been enforced since 2006 and is entering its third period (2015-2017) to be in tune with these directives. Thus, the WC scheme undergoes a revision of unitary savings differentiating between devices already covered by EDD (e.g. boilers) and appliances which are not (e.g. windows). The outcome is a blend of different references (stock, market) and savings (total, marginal) depending on the considered unitary action. Consequences could be a lack of clarity especially for non-specialists of energy policy. This paper addresses the question of a possible conflict of interests between the European system, allocating savings by directive, and the overall customer savings. Scenarios embedded impacts of the new European rules on the WC market are quantified in order to answer the question: will the third period of WC give a positive signal to the refurbishment market? The overall revising process of the third period of WC and its consequences will be presented concerning the building sector. More precisely, calculations to quantify impacts on unitary action savings, on WC costs and on the retrofitting market structure are detailed. Finally, suggestions are proposed that enable both the enhancement of energy efficiency at the European level as well as the sustaining of the dynamics of the French WC market by providing clear and explicit information.

In addition to the already present Climate and Energy package, the European Union (EU) plans to include a binding target to reduce energy consumption. We analyze the rationales the EU invokes to justify such an overlapping and develop a minimal common framework to study interactions arising from the combination of instruments reducing emissions, promoting renewable energy (RE) production and reducing energy demand through energy efficiency (EE) investments. We find that although all instruments tend to reduce GHG emissions and although a price on carbon tends also to give the right incentives for RE and EE, the combination of more than one instrument leads to significant antagonisms regarding major objectives of the policy package. The model allows to show in a single framework and to quantify the antagonistic effects of the joint promotion of RE and EE. We also show and quantify the effects of this joint promotion on ETS permit price, on wholesale market price and on energy production levels., En complément du paquet Climat et Energie déjà existant, l'Union Européenne prévoit d'inclure un objectif contraignant pour réduire la consommation d'énergie. Nous analysons les raisons invoquées par l'UE pour justifier une telle superposition et nous développons un cadre minimal pour étudier les interactions dues à la combinaison d'instruments de réduction des émissions, de promotion de la production d'énergie renouvelable (ENR) et de réduction de la demande d'énergie au moyen d'investissements d'efficacité énergétique (EE). Bien que tous ces instruments tendent à réduire les émissions de gaz à effet de serre, et bien qu'un prix du carbone tende aussi à donner les incitations qui conviennent pour les ENR et l'EE, il apparait que la combinaison de plus d'un instrument conduit à des antagonismes significatifs au regard des objectifs de l'ensemble des politiques. Le modèle permet d'exhiber les effets antagonistes d'une promotion conjointe d'ENR et d'EE dans un cadre unifié et de les quantifier. Nous montrons et quantifions également les effets de cette promotion conjointe sur le prix des permis ETS, sur le prix du marché de gros et sur les niveaux de production d'énergie.

This paper assesses the impact of French policies for residential space-heating energy consumption, both enacted (tax credits for the purchase of energy efficient durables, soft loans for retrofitting actions, stringent building codes) and anticipated (carbon tax, retrofitting obligation). It uses a hybrid energy-economy model incorporating specific features of energy conservation, notably the rebound effect and some "barriers" to energy efficiency such as split incentives and imperfect information. Forward-looking simulations show that (i) stand-alone policies improve the energy efficiency of the building stock but, with the exception of carbon tax, generate a rebound effect ; (ii) interactions among instruments are roughly additive ; (iii) a combination of all policies fails to meet Government conservation targets., Cette étude évalue l'impact des politiques existantes (crédits d'impôt pour l'achat de biens énergétiquement efficaces, éco-prêt à taux zéro pour la rénovation énergétique, réglementation thermique) et supplémentaires (taxe carbone, obligation de rénovation énergétique) sur la consommation résidentielle d'énergie pour le chauffage en France. Elle utilise un modèle hybride énergie-économie intégrant des déterminants spécifiques de la consommation d'énergie, comme l'effet rebond et certaines barrières à l'efficacité énergétique telles que l'information imparfaite ou le " dilemme propriétaire-locataire ". Les simulations prospectives montrent que (i) pris séparément, tous les instruments améliorent l'efficacité énergétique du parc de logements, mais, à l'exception de la taxe carbone, induisent un effet rebond ; (ii) les interactions entre instruments sont globalement additives ; (iii) la combinaison de toutes ces politiques ne permet pas d'atteindre les objectifs officiels d'économies d'énergie.

The macroeconomic theory of optimal fiscal and monetary policy based on the assumption of a ‘benevolent dictator’ has identified several key lessons which are thought to substantially improve the economic conditions of a nation (see Chari and Kehoe, 1999, Woodford, 2003): (i) Debt should be zero or negative in the long run, (ii) taxes on capital income should be zero in the long run or on average, and (iii) in the analysis of monetary policy, fiscal policy can largely be neglected. However, due to either distortions in the political process or market frictions beyond reach of policymakers, these optimal, welfare-enhancing policies are often not implemented as recommended by economic theory. The aim of this thesis is therefore twofold: First, to explain the gap between recommended and actually implemented policies and, second, to find mechanisms (or alternative policies) aimed at attenuating these deviations from optimality. Chapter 2 studieswelfare consequences of a soft borrowing constraint on sovereign debt which is modeled as a proportional fine per unit of debt exceeding some reference value. Debt is the result of myopic fiscal policy where the government is assumed to have a smaller discount factor than the private sector. In the absence of lump-sum taxation, debt reduces welfare. The chapter shows that the imposition of the soft borrowing constraint, which resembles features of the Stability and Growth Pact and which is taken into account by the policy maker when setting its instruments, prevents excessive borrowing. The constraint can be implemented such as to (i) control the long run level of debt, (ii) prevent debt accumulation, and (iii) induce debt consolidation. In all three cases the constraint enhances welfare and these gains outweigh the short run welfare losses of increasing the costs of using debt to smooth taxes over the business cycle by two orders of magnitude. Why do governments tax capital in face of the benchmark of standard economic theory that capital ought to be untaxed? Chapter 3 provides a model of fiscal policy with endogenous labour, bonds, and capital in order to account for the observation that worldwide taxes on capital remain far from zero. It introduces policy myopia into an otherwise standard framework of optimal fiscal policy where the government can tax labour and capital income and shows, analytically for the case of quasi-linear preferences and numerically for the case of CRRA preferences, that policy myopia leads to empirically realistic tax rates on capital. Moreover, it is shown that the tax rate on capital increases as myopia increases. Finally, the chapter analyzes the effects of policy myopia on the conduct of fiscal policy over the business cycle. Based on the theoretical analysis of Chapter 3, Chapter 4 presents empirical support for the hypothesis that higher political instability leads to an increase of the tax rate on capital income. The hypothesis is tested on a panel of annual observations for 13 OECD countries for the period 1964-1983. Themain finding is that an increase of the index of political instability by one standard deviation leads to an increase of the tax rate on capital by about 1.8 percentage points. This effect is statistically and economically significant and robust against alternative sets of regressors and measures of the dependent variable, outlier correction, and alternative estimation strategies. Chapter 5 (joint with Markus Kirchner) assesses the role of sovereign risk in explaining macroeconomic fluctuations in Turkey. We estimate two versions of a simple New Keynesian small open economy model on quarterly data for the period 1994Q3-2008Q2: A basic version and a version augmented by a default premium on government debt due to a perceived risk of sovereign debt default. Model comparisons clearly support the augmented version since it leads to stronger internal propagation and hence smaller shocks are required in order to reconcile the observed dynamics of nominal and real variables, leading to better forecasting performance. The results suggest that the augmented model may lead to a better understanding of macroeconomic fluctuations in emerging market economies that are subject to sovereign risk. In terms of policy implications, counterfactual experiments show that both more active monetary policy and stronger fiscal feedbacks from debt on taxes can lead to less volatile inflation and debt dynamics, but higher debt feedbacks on taxation additionally reduce expected default rates.

We show that renewable energy contributes to Europe's 2020 primary energy savings target. This contribution, which is to a large extent still unknown and not recognized by policy makers, results from the way renewable energy is dealt with in Europe's energy statistics. We discuss the policy consequences and argue that the "energy savings" occurring from the accounting of renewable energy should not distract attention from demand-side energy savings in sectors such as transport, industry and the built environment. The consequence of such a distraction could be that many of the benefits from demand-side energy savings, for example lower energy bills, increase of the renewable energy share in energy consumption without investing in new renewable capacity, and long-term climate targets to reduce greenhouse gas emissions by more than 80%, will be missed. Such distraction is not hypothetical since Europe's 2020 renewable energy target is binding whereas the 2020 primary energy savings target is only indicative.

Using a unique 10-year dataset of all 458 Dutch municipalities, we apply a differences-in-differences approach to estimate the effect of unit-based pricing on household waste quantities and recycling. Community-level studies of unit-based pricing typically do not include fixed effects at the local level. We find that failure to do so may substantially inflate the estimated price effect. We also find that unit-based pricing may be endogenous, and use instrumental variables to account for this. Our analysis shows that user fees depend on user fees in neighboring jurisdictions (policy interaction). Our estimate of the garbage reduction per $1 user fee is lower than any previous estimate bar one. The price effect depends on the pricing system: weight-based systems reduce garbage quantities more than volume-based systems. User fees increase recycling, especially of paper, but not nearly as much as they reduce garbage quantities. We find no evidence for waste tourism or illegal dumping.

Previous literature widely assumes that taxes are optimized in local public finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments influences the way local governments decide on public policy. Unlike the presumption, the paper shows that local governments may choose to optimize over expenditures. The result most notably prevails when federal policy subsidizes local fiscal effort. The results offer a new perspective of the efficiency implications of federal policy toward local governments and, thereby, enable a more precise characterization of local government behaviour in fiscal federalism.

The dissertation consists of four papers, of which each may be read separately. Nonetheless, the four papers are not independent of each other. The general aim of this dissertation is to contribute to a better understanding on how fiscal policy affects monetary policy and what is required in terms of fiscal policy in order to guarantee a continuous success of the European Monetary Union (EMU). The first paper is a purely theoretical contribution presenting the decisive impulses for the questions analyzed empirically in the remaining three papers of this dissertation. It is investigated, how fiscal policy actions affect the monetary policy of a central bank that is obliged to realize the welfare-maximizing policy plan. It is basically shown, using a simple dynamic game between monetary and fiscal policy, that the optimal behavior of monetary policy is non-trivially determined by fiscal behavior. Further, it is shown that an optimal monetary policy in a currency union gives member states with a larger degree of price rigidities a larger weight in its targeting rule. In the second paper of this dissertation, we analyze how inflation has been transmitted among the five largest countries in the EMU during the last three decades. The motivation for this paper goes back to the finding of the first paper that optimal monetary policy in a currency union accounts for different degrees of price rigidities across members states. While the previous empirical research in this field has favored univariate approaches in measuring price rigidities and inflation persistence, we utilize a multivariate approach that allows for spillover effects in inflation persistence among the five countries under consideration. As the analysis covers the years from 1970 to 2006, which is quite a long period given the continuous economic integration of European countries. As a result, we allow for regime changes in the transmission process. The third paper is devoted to the question of monetary and fiscal policy interaction. Using German and Spanish data as an example of two countries within the EMU, which performed very differently in terms of inflation in the recent past, we analyze, if these differences can be traced back to fiscal policy actions. In particular, we analyze, if the fiscal theory of the price level is a relevant mechanism in one of the two countries. In the econometric analysis we utilize a Bayesian approach. Generally, there has been a dramatic increase in the use of Bayesian techniques in econometrics in the past 15 years. While the potential of Bayesian methods have long been recognized, the recent popularity stems in parts from advances in computational power. Of course, Bayesian methods are not a substitute for classical econometric approaches. Rather they should be seen as a supplement to these. Nonetheless, there are cases, when Bayesian methods seem to be more promising than classical approaches. As we will argue, one of these cases is the analysis of fiscal data, where classical methods exhibit some problems. Finally, the fourth paper analyzes fiscal policy behavior in Germany and Spain using simple policy rules. It completes and extends the results obtained in the third paper. In particular, we investigate how fiscal policy in the two countries reacts to a rising level of debt. We use a Bayesian Markov-switching approach to find evidence for changes in the underlying regimes., Die vorliegende Dissertation besteht aus vier Artikeln, die zwar grundsätzlich einzeln gelesen werden können, jedoch in einem gewissen Zusammenhang zueinander stehen. Das Ziel dieser Dissertation soll es sein, zu einem besseren Verständnis der Interaktionseffekte zwischen Geld- und Fiskalpolitik beizutragen. Der erste Artikel ist ein theoretischer Beitrag. In ihm wird der Frage nachgegangen, inwiefern Fiskalpolitik einen Einfluss auf das Verhalten einer wohlfahrtsoptimierenden Zentralbank hat. Es wird gezeigt, dass das optimale Verhalten der Geldpolitik durch das Verhalten der Fiskalpolitik beeinflusst wird. In dem zweiten Artikel wird empirisch analysiert, wie Inflationsschocks innerhalb des Euroraumes übertragen werden. Motiviert ist die Analyse durch theoretische Arbeiten, in denen länderspezifische Unterschiede in der Starke der Preisrigiditaten als entscheidende Determinanten eines optimalen Zentralbankverhaltens bestimmt wurden. Die Analyse baut auf einem Vektorfehlerkorrekturmodell auf, das Regimeveränderungen in der Kurzfristdynamik und in den Anpassungskoeffizienten berücksichtigt. Auf Grundlage der empirischen Ergebnisse werden Aussagen zum Transmissionsprozess von Inflationsschocks getroffen. Anschließend werden die sich daraus ableitenden Implikationen in Bezug auf die Höhe der Preisrigiditäten innerhalb des Euroraumes erörtert. Der dritte Artikel widmet sich wiederum der Interaktion von Geld- und Fiskalpolitik, diesmal jedoch aus empirischer Perspektive. Am Beispiel von Deutschland und Spanien wird untersucht, ob die in jüngster Vergangenheit zu verzeichnenden Inflationsunterschiede durch fiskalpolitische Handlungen erklärt werden können. Den theoretischen Rahmen für die Analyse liefert die fiskalische Theorie des Preisniveaus. Der empirische Ansatz basiert auf einem bayesianischen vektorautoregressiven Modell. Es werden die Probleme klassischer ökonometrischer Verfahren bei der Analyse von fiskalpolitischen Variablen erörtert. Der vierte Artikel schließlich beschäftigt sich mit der Analyse des fiskalpolitischen Verhaltens in Deutschland und Spanien auf der Grundlage einfacher fiskalpolitischer Regeln. Dabei liegt der Fokus der Analyse auf dem Zusammenhang zwischen Staatsverschuldung einerseits und Staatseinnahmen andererseits. Ausgehend von den Ergebnissen des dritten Artikels wird wiederum ein bayesianischer Ansatz verwendet. Um Änderungen im fiskalpolitischen Verhalten zu identifizieren, werden Regimewechsel über ein Markov-Modell berücksichtigt.

This paper analyzes German and Spanish fiscal policy using simple policy rules. We choose Germany and Spain, as both are Member States in the European Monetary Union (EMU) and underwent considerable increases in public debt in the early 1990s. We focus on the question, how fiscal policy behaves under rising public debt ratios. It is found that both Germany and Spain generally exhibit a positive relationship between government revenues and debt. Using Markov-switching techniques, we show that both countries underwent a change in policy behavior in the light of rising debt/output ratios at the end of the 1990s. Interestingly, this change in policy behavior differs in its characteristics across the two countries and seems to be non-permanent in the case of Germany.

This paper analyzes empirically the impact of fiscal policy on the price level for Germany and Spain. We investigate, whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different evolutions of the price levels in these two countries during recent years. We apply a Bayesian VAR model with sign restrictions on the impulse responses to assess the relation between surpluses and public debt. The analysis basically evidences non-Ricardian equilibria in Spain, while the opposite is true for Germany. We interpret this as evidence for the inflation differences in these two countries being partially induced by fiscal policy shocks.

This paper analyzes empirically the impact of fiscal policy on the price level for the casesof Germany and Spain. We investigate whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different performances of the price level in these two countries during recent years. We apply two different approaches. The first is a Bayesian VAR model using sign restrictions to assess the relation between surpluses and public debt. Afterwards, we use a Bayesian regime-switching model to uncover changes inmonetary and fiscal policy behavior. The analysis basically shows that in each of the two countries fiscal shocks have a significant impact on the price level. Nonetheless, the FTPL does not deliver a reasonable explanation for the differences in the pattern of inflation between the two countries.

This paper examines the interaction between monetary and budgetary policy. A comparison of the dynamic responses in di.erent exchange rate regimes offers an assessment of the monetary union case. The analysis proceeds on an SVAR-common trends model. In its current specification, we can only infer responses to the budgetary policy shock. Its identification is obtained by imposing a (long term) solvency condition on government accounts, exploiting automatic stabilisation responses of government revenues, and the imposition of the Fisher relationship. Two main conclusions emerge. Budgetary policy shocks indirectly lead to monetary tightening. Such effects are significant in countries with flexible exchange rate regimes only. Second, policy regime shifts are important.