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European Fiscal Policy Rules: First 15 Years

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  • David Prušvic
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    Abstract

    The Stability and Growth Pact has become a primary fiscal policy framework in all European countries since 1997. Together with Maastricht fiscal criteria it determines the fiscal discipline of integration process. The aim of this study is to evaluate ex-post effectiveness of the fiscal rules from the view of a primary structural balance development during 1991-2007. A method taken for the evaluation was a panel-corrected standard errors regression with fixed effects applied on the former euro zone countries (EA12), "old" EU members (EU15) and finally on the EU25. The results of the econometric estimation indicate that all considered rules were effective even though with different impacts. Furthermore, the analysis suggests that electoral cycle, among others, has strong impact on the primary structural component of public balance. However against theoretical assumptions, there is not a conclusive statistical significance of the government behaviour on the current state in the business cycle.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Politická ekonomie.

    Volume (Year): 2010 (2010)
    Issue (Month): 1 ()
    Pages: 51-69

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    Handle: RePEc:prg:jnlpol:v:2010:y:2010:i:1:id:719:p:51-69

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    Related research

    Keywords: Stability and growth pact; fiscal policy rule; fiscal policy; enforceability; cross-section panel data analysis;

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    References

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    1. Hallerberg, Mark & Strauch, Rolf & von Hagen, Jurgen, 2007. "The design of fiscal rules and forms of governance in European Union countries," European Journal of Political Economy, Elsevier, vol. 23(2), pages 338-359, June.
    2. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
    3. Stephan Danninger, 2002. "A New Rule: "The Swiss Debt Brake"," IMF Working Papers 02/18, International Monetary Fund.
    4. Marco Buti & Paul van den Noord, 2004. "Fiscal policy in EMU: Rules, discretion and political incentives," European Economy - Economic Papers 206, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    5. Jonathan Millar, 1997. "The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization," Working Papers 97-15, Bank of Canada.
    6. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
    7. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
    8. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
    9. Marco Buti & Paul van den Noord, 2003. "Discretionary Fiscal Policy and Elections: The Experience of the Early Years of EMU," OECD Economics Department Working Papers 351, OECD Publishing.
    10. George Kopits, 2001. "Fiscal Rules: Useful Policy Framework or Unnecessary Ornament?," IMF Working Papers 01/145, International Monetary Fund.
    11. Michal Mackiewicz, 2005. "Choice of The Optimum Fiscal Rule – The Long Run Perspective," Public Economics 0501007, EconWPA.
    12. Michael Kell, 2001. "An Assessment of Fiscal Rules in the United Kingdom," IMF Working Papers 01/91, International Monetary Fund.
    13. Poterba, James M., 1995. "Balanced Budget Rules and Fiscal Policy: Evidence From the States," National Tax Journal, National Tax Association, vol. 48(3), pages 329-36, September.
    14. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
    15. Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series 0421, European Central Bank.
    16. George Kopits & J. D. Craig, 1998. "Transparency in Government Operations," IMF Occasional Papers 158, International Monetary Fund.
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