Tied to the mast? National fiscal rules in the European Union

Abstract

"Numerical fiscal rules implemented at the national level in member countries of the European Union offer useful information on possible reasons for the growing reliance on such rules, and on their implication for fiscal policy. Our analysis of a survey-based dataset suggests that both the introduction of the EU fiscal framework and country-specific fiscal governance features played a role in triggering introduction of numerical fiscal rules, and that the impact of rules is statistically significant, robust, and quantitatively important. Outcomes and rules may be jointly determined by unobserved political factors, but the evidence suggests that causality runs from rules to fiscal behaviour, and that rules specifically designed to prevent conflicts with the stabilization function of fiscal policy are indeed associated with less pro-cyclical policies." Copyright (c) CEPR, CES, MSH, 2008.

Determinants of fiscal rules

“…Several empirical studies suggest that stringent fiscal frameworks (in terms of budget preparation, implementation, rules, transparency requirements) have a positive effect on the fiscal balance (e.g., Von Hagen 1992, Bohn and Inman 1996, Alesina et al 1999, Gleich 2003, Hallerberg 2003, Wagner 2003, Filc and Scartascini 2004, Debrun et al 2008, Nerlich and Reuter 2013. However, since fiscal balances are included as a key explanatory variable in our empirical model on the determinants of the current account, this channel is not subject of the present study.…”

Do budgetary institutions mitigate the common pool problem? New empirical evidence for the EU

“…4 A third explanation for a deficit bias that will not be dealt with in the present paper refers to the limited time horizon of politicians (cf. Debrun et al 2008). Politicians can try winning electoral support by implementing popular fiscal decisions now (extra spending, lower taxes) while shifting the burden to the future.…”

“…These numerical rules set targets and ceilings for fiscal aggregates or set benchmarks for the conduct of fiscal policy. Ayuso-i-Casals et al (2007) and Debrun et al (2008) report that a more extensive use of numerical rules and rules with a more effective design reduce the size of deficits.…”

Governance and State Structures

“…The expectation that tight domestic fiscal disciplines would contain economic pressures proved unrealistic. Not only were the sanctioning powers of the European Central Bank too weak to be effective, but the largest and most powerful member states, Germany and France, themselves breached the rules with impunity when domestic conditions dictated it (Blavoukos and Pagoulatos 2008;Dadush 2010;Debrun et al 2008;Hallerberg and Bridwell 2008;Heipertz and Verdun 2010).…”