Fiscal adjustment between 1991 and 2002: stylised facts and policy implications

This paper aims to assess whether the implementation of the European Union (EU) framework of fiscal rules has been successful in promoting budgetary consolidation in EU Member States. The paper focuses on the period 1991-2002. It reviews the patterns of budgetary adjustment adopted in the 1990s in the Member States by analysing the size and composition of budget measures, while also taking into account the initial state of public finances. Moreover, the paper looks at the behaviour of fiscal policy over the business cycle, examining the link between budgetary consolidation and the cyclicality of public finances. As a closely related issue, the paper points out conditions under which the negative effects of fiscal contractions on economic activity might possibly be minimised. It then looks at the experience of fiscal consolidation in the various countries and assesses whether countries have implemented adequate budgetary adjustments. Stylised facts show that Member States implemented major budgetary adjustments in the 1990s marking clear structural breaks in the policy regimes compared with the previous decade. However, most progress was made via revenue-based adjustment, including temporary measures, with insufficient emphasis put on primary expenditure restraint. In recent years, JEL Classification: E62, E63, H62, H63