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Towards expenditure rules and fiscal sanity in the euro area

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  • Hauptmeier, Sebastian
  • Sanchez Fuentes, Jesus
  • Schuknecht, Ludger

Abstract

The study looks at primary expenditure developments in the euro area, its three largest members and four “macro-imbalances” countries for the period 1999-2009. It compares actual expenditure trends with those that would have prevailed if countries had followed neutral policies based on expenditure rules since the start of EMU. It also calculates the implications for debt trends. It finds that, all sample countries except Germany applied expansionary expenditure policies. This resulted in much higher expenditure and debt paths compared to a counterfactual neutral expenditure stance. Simple and prudent rules-based spending policies could have led to much safer fiscal positions much more in line with the EU’s Stability and Growth Pact rules. JEL Classification: E17, E61, E65, H50, H60

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1266.

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Date of creation: Nov 2010
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Handle: RePEc:ecb:ecbwps:20101266

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Keywords: Expenditure policies; expenditure rules; fiscal stance; public debt; sustainability;

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  1. Jacopo Cimadomo, 2012. "Fiscal Policy in Real Time," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 440-465, 06.
  2. Tilman Brück & Rudolf Zwiener, 2004. "Fiscal Policy Rules for Stabilisation and Growth: A Simulation Analysis of Deficit and Expenditure Targets in a Monetary Union," Discussion Papers of DIW Berlin 427, DIW Berlin, German Institute for Economic Research.
  3. G�nter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & Ren� Lalonde & Douglas Laxton & Jesper Lind� & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Ca, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
  4. Alessandro Turrini, 2008. "Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure," European Economy - Economic Papers 323, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Menguy, Séverine, 2008. "A dynamic rule applied to the threshold imposed on the European budgetary deficits," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 1093-1105.
  6. Peter Wierts, 2008. "How do Expenditure Rules affect Fiscal Behaviour?," DNB Working Papers 166, Netherlands Central Bank, Research Department.
  7. Holm-Hadulla, Fédéric & Hauptmeier, Sebastian & Rother, Philipp, 2010. "The impact of numerical expenditure rules on budgetary discipline over the cycle," Working Paper Series 1169, European Central Bank.
  8. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR & CES & MSH, vol. 23, pages 297-362, 04.
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Citations

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Cited by:
  1. Matthias Bauer, 2013. "Political Aversion To a Multilateral Fiscal Rule: The Dynamic Commitment Problem in European Fiscal Governance," Global Financial Markets Working Paper Series 44-2013, Friedrich-Schiller-University Jena.
  2. Jerome Creel & Paul Hubert & Francesco Saraceno, 2012. "An assessment of Stability and Growth Pact Reform Proposals in a Small-Scale Macro Framework," Documents de Travail de l'OFCE 2012-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 730-749.
  4. Ludger Schuknecht, 2013. "Has Public Insurance Gone Too Far?," CESifo Working Paper Series 4217, CESifo Group Munich.
  5. Paul Hubert & Jérôme Creel & Francesco Saraceno, 2012. "An assessment of stability and growth pact reform proposals in a small-scale macro framework," Sciences Po publications 2012-04, Sciences Po.
  6. Maravalle, Alessandro & Claeys, Peter, 2012. "Boom–bust cycles and procyclical fiscal policy in a small open economy," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 735-754.
  7. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?," OECD Economics Department Working Papers 932, OECD Publishing.
  8. Ermal Hitaj & Yasin Kursat Onder, 2013. "Fiscal Discipline in WAEMU: Rules, Institutions, and Markets," IMF Working Papers 13/216, International Monetary Fund.
  9. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2013. "Are government wages interlinked with private sector wages?," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 697-712.
  10. Ludger Schuknecht & Philippe Moutot & Philipp Rother & Jürgen Stark, 2011. "The Stability and Growth Pact: Crisis and Reform," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 10-18, October.
  11. Artzrouni, Marc & Tramontana, Fabio, 2013. "The debt trap: a two-compartment train wreck," MPRA Paper 47578, University Library of Munich, Germany.
  12. Mencinger, Jernej & Aristovnik, Aleksander, 2013. "Fiscal Policy Stance in the European Union: The Impact of the Euro," MPRA Paper 44708, University Library of Munich, Germany.
  13. António Afonso & Ana Sofia Guimarães, 2014. "The relevance of fiscal rules for fiscal and yield developments," Working Papers Department of Economics 2014/05, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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