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The Impact of the European Union Fiscal Rules on Economic Growth

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This study intends to provide an empirical answer to the question of whether Maastricht and SGP fiscal rules have affected growth of European Union countries. A growth equation augment with fiscal variables and controlling for the period in which fiscal rules were implemented in Europe is estimated over a panel of 15 EU countries (and 8 OECD countries) for the period 1970-2005 with the purpose of answering this question. The equation is estimated using both a dynamic fixed effects estimator and a recently developed pooled mean group estimator. GMM estimators are also used in a robustness analysis. Empirical results show that growth of real GDP per capita in the EU was not negatively affected in the period after Maastricht. This is the case when the recent performance of EU countries is compared both with their past performance and with the performance of other developed countries. Results even show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed. Therefore, this study concludes that the institutional changes that occurred in Europe after 1992, especially the implementation of Maastricht and Stability and Growth Pact fiscal rules, should not be blamed for being harmful to growth in Europe.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 10/2007.

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Date of creation: 2007
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Handle: RePEc:nip:nipewp:10/2007

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Keywords: European Union; Economic Growth; Fiscal rules; Pooled mean group estimator;

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  1. Bond, Stephen Roy & Hoeffler, Anke & Temple, Jonathan, 2001. "GMM Estimation of Empirical Growth Models," CEPR Discussion Papers 3048, C.E.P.R. Discussion Papers.
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  3. Vítor Castro, 2007. "The Impact of the European Union Fiscal Rules on Economic Growth," NIPE Working Papers 10/2007, NIPE - Universidade do Minho.
  4. Sjef Ederveen & Henri L .F. Groot & Richard Nahuis, 2006. "Fertile Soil for Structural Funds?A Panel Data Analysis of the Conditional Effectiveness of European Cohesion Policy," Kyklos, Wiley Blackwell, vol. 59(1), pages 17-42, 02.
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Cited by:
  1. Castro, Vítor, 2010. "The duration of economic expansions and recessions: More than duration dependence," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 347-365, March.
  2. Luca Agnello & Vitor Castro & Ricardo M. Sousa, 2013. "Are There Change-Points in the Likelihood of a Fiscal Consolidation Ending?," GEMF Working Papers 2013-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
  3. L, Agnello. & R, M. Sousa., 2012. "How does Fiscal Consolidation Impact on Income Inequality?," Working papers 382, Banque de France.
  4. Zaenal Mutaqin & Masaru Ichihashi, 2012. "The Role of Maastricht Criteria and Membership in Determining Convergence in the Eurozone and ASEAN: A Panel Data Analysis," IDEC DP2 Series 2-7, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  5. Castro, Vítor, 2007. "The Impact Of The European Union Fiscal Rules On Economic Growth," The Warwick Economics Research Paper Series (TWERPS) 794, University of Warwick, Department of Economics.

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