Absolute Poverty and Sound Public Finance in the Eurozone

Abstract

AbstractThe respect of fiscal parameters is supposed to be – according to the official position of the European institutions – the best recipe for granting stability and growth. This optimistic view appears to be in contrast with the recent increase in poverty. The aim of this paper is to individuate the existence of a relation between governments’ decisions about fiscal policy and absolute poverty in 19 Eurozone countries from 2005 to 2017. The attempt is to answer the question as to whether the effect on growth generated by fiscal policy measures can account for the objective of poverty alleviation. The results support the conclusion that absolute poverty increases in the presence of a restrictive fiscal policy, while it decreases in the opposite case. During declining macroeconomic conditions, national governments belonging to the Eurozone appear to be unable to reconcile the objective of sound public finance with that of poverty alleviation.