Budget convergence and business cycle in the European Union

This paper analyzes the role of the business cycle in the convergence
process of both deficit and debt ratios in the EMU. In assessing the effectiveness
of institutional reforms to reach EMU’s fiscal objectives, it is important to
consider the relation between business cycle and the improvement of fiscal
balances along the nineties. To analyse this relation, cyclical components in
the GDP series and in the deficit and debt ratios are obtained and these series
are jointly modelled. The located relation between business cycle and fiscal
consolidation allow us to say that, in absence of severe and long term oriented
fiscal adjustments, the first conditioning factor to make viable a fiscal stability

program as SGP, is the generation of high and sustained growth rates.

Fernando Alonso Guinea
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