Fiscal rules compliance and trust in institution in Eurozone: The case of European Central Bank

Abstract

The institutional and policy features of Eurozone represent a field of special interest to analyse the process of integration. The aim of this study is to investigate on the existence of a trade-off between the compliance to fiscal rules and trust as a proxy of institutional legitimacy in Eurozone. At this scope, the relation between trust in the European Central Bank (ECB) and structural adjustment, together with unemployment and inflation in 11 Eurozone countries from 1999 to 2013, is tested. The empirical results showed that: (i) discretionary policy measures have an opposite sign impact on trust; (ii) in peripheral countries, the structural adjustment is the main variable affecting trust in ECB; (iii) unemployment plays a key role; and (iv) deviation from the objective of 2% of inflation is not significant. These outcomes prove the existence of a trade-off between the fiscal rules commitments and the European institutional consolidation process.

Trust in the European Union project and the role of ECB

“…Consistent with these results are those reached by Bonasia and Canale ( 2018 ), who find that trust in the three main European institutions (ECB, EC and EP) are, together with inflation and unemployment, strongly driven by fiscal measures implemented to comply with supranational rules (Canale & Liotti, 2018 ). In addition, Darkos et al ( 2018 ) document a substantial negative impact on trust in ECB for countries experiencing a downgrade of their credit rating and participating in economic adjustment programmes (Muñoz et al 2011 ).…”

Assessing Tax Compliance Behavior Among Romanian Taxpayers: An Empirical Case Study

“…As such, institutional trust can be viewed as a fundamental characteristic of modern democracies and is essential to ensure social, economic, and political stability. Also, institutional trust is negatively correlated with discretionary policy measures (Canale & Liotti, 2019; Cirman et al, 2021). According to Batrancea et al (2019), trust and the power of authorities increase the intention to comply with taxes and reduce the intention to engage in tax evasion across countries with different economic, political, sociodemographic, and cultural backgrounds.…”