Abstract
Fiscal interactions in Europe are a major challenge. Countries can cooperate or be engaged in a tax or a yardstick competition process. This paper uses a Spatial Dynamic Panel Data model (SDPD) to test the timing of fiscal stances interactions in Europe. Results show that fiscal interactions are not contemporaneous: governments mimic the behavior of neighboring governments on the last year, leading to a kind of “delayed mimicking” behaviors. This result is then used and deepened to discriminate between the three main rationales for fiscal interactions. Using original weighting schemes based on political proximity and similarities between investment contexts, we show that fiscal interactions in Europe are likely due to yardstick competition. Implications are twofold: on one hand controlling for delayed interactions when fiscal interactions are estimated is necessary, and, on the other hand, more organizations are needed in Europe in order to foster cooperation and thus to improve fiscal policy efficiency.
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