EU FISCAL POLICY SUSTAINABILITY DURING FINANCIAL CRISIS: A COINTEGRATION APPROACH

Public authorities have a huge responsibility regarding taxation and collecting the public revenue, and furthermore to allocate the public money in the right manner. All the countries are seeking the equilibrium between revenue and expenditure, being important for each of them in promoting a sustainable economic growth. The main responsibility to obtain this balance between revenue and expenditure is held by fiscal policy. Even if many economists believe that, in general, crises are a deviation from the normal trend of the economy, we think that crisis is normality, being directly related to economic stages: recession and expansion. That is the reason for why having a sustainable fiscal policy is important for a country in order to diminish the crisis' negative effects. This paper is emphasizing fiscal policy in European Union (EU) countries, because through keeping the control over the balance between expenditures and revenues, a country is able to promote a stable macroeconomic and financial environment. For this purpose, we use the cointegration relation between revenues and expenditures of each EU country for the period 2000 - 2013. Moreover, we want to see if revenues respond better to shocks caused by structural changes in expenditure, or the opposite case. Another aspect we want to highlight is to see if financial crisis affected the fiscal policy sustainability by analyzing the sustainability of fiscal policy before crisis and the entire period which include the financial crisis.