Promised Fiscal Expansions and Politics: A European Union Assessment

Abstract

This paper analyzes the political economy causes of fiscal promise gaps, defined as the distance between planned fiscal objectives and actual realizations during planned fiscal expansions periods. Using a sample of 27 European Union countries between 1992 and 2015, we identify, by means of an "hybrid" narrative approach, 68 episodes of promised fiscal expansions. We show that expansionary promise gaps were sizeable (about 1.5-2.5% of GDP during an average fiscal expansion episode) and that initial and economic conditions matter in explaining their size. We also find that the more leftist a government is, the larger the expansionary promise gap. Governments facing weak opposition in the parliament and those more effective are characterized by smaller expansionary promise gaps. Regarding the importance of decentralization and the role played by subnational governments, the larger their capacity to influence national legislation and policy, the larger the promise gaps.

Changes in Fiscal Deficit and Public Debt of the Republic of Serbia During the Covid-19 Pandemic Period

“…On the other hand, Cifuentes-Faura (2021) points out that it is necessary to implement an expansive fiscal policy while increasing public debt and respecting the postulates of Kenyanism on the path to the economic recovery of EU countries from the COVID-19 crisis. In order to reduce supply-side shocks, an expansive fiscal policy would maintain employment levels and reduce the tax burden on companies (Jalles, 2021).…”