Convergence of fiscal policies in EMU: a unit-root tests analysis with structural break

Abstract

The aim of this study is first to determine whether the fiscal policy among EMU countries have converged and then to identify the source of the convergence process. The convergence of fiscal policies was at the core of the fiscal criteria imposed by the Maastricht treaty but it may also have resulted from the economic and financial integration that preceded the Treaty. Some unit-root tests are implemented on the cross-country variance for various fiscal policy indicators where a break in the intercept and the trend is allowed to catch whether the convergence is due to institutional arrangements or to economic integration. We conclude that the fiscal position has converged but the break date, selected before 1992, indicates that the convergence process preceded the Maastricht treaty. Considering the fiscal receipts, the hypothesis of convergence is accepted only when they are adjusted from the cyclical component. The convergence of fiscal expenditures is finally clearly rejected.

Fiscal Convergence in the European Union Before the Crisis

“…The time series results bring into focus this convergence process, which appears stronger for revenues than for government expenditure. This result is particularly important in the light of the weak or no convergence evidence reported in the previous literature concerned with tax convergence inside the EU area (Blot and Serranito 2006;Delgado andPresno 2010, 2011). This suggests that the introduction of the common currency and the framework of the Amsterdam Treaty strengthened the process of economic integration, starting a slow approach toward a common relative size of government.…”

Did the Maastricht treaty matter for macroeconomic performance? A difference‐in‐difference investigation

“…While their study does not necessarily indicate that the treaty has led to an increase of deficits, it shows that fiscal stabilization still is an available instrument in the political toolkit. Blot and Serranito (2006) confirm that fiscal policies have converged, but generally reject the notion that the Maastricht treaty has been the cause for the convergence. They instead find that convergence has preceded the Maastricht treaty.…”

Market Instruments for a Sustainable Economy: Environmental Fiscal Policy and Manifest Divergences

“…However, in terms of traditional convergence with respect to taxation, few studies have been carried out (Blot & Serranito, 2006;Delgado, 2009;Esteve, Sosvilla-Rivero, & Tamarit, 2000;Gemmell & Kneller, 2003;Sosvilla, Galindo, & Alonso, 2001), and fewer still have applied unit root analysis (Delgado & Fern andez, 2006;Delgado & Presno, 2007;Esteve, Sosvilla-Rivero, & Tamarit, 1999). Among others, empirical analyses in the field of environmental taxation have been conducted by Abolhosseini, Heshmati, and Altmann (2014);Howarth (2006); and Galinato and Yoder (2010).…”