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The Impact Of The European Union Fiscal Rules On Economic Growth

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  • Castro, Vítor

    (University of Warwick, University of Coimbra and NIPE)

Abstract

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 augmented 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 University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 794.

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Length: 49 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:wrk:warwec:794

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Keywords: European Union ; Economic Growth ; Fiscal rules ; Pooled mean group estimator;

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  1. Castro, Vítor, 2007. "The Impact Of The European Union Fiscal Rules On Economic Growth," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 794, University of Warwick, Department of Economics.
  2. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3933, C.E.P.R. Discussion Papers.
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  16. Hein, Eckhard & Truger, Achim, 2005. "European Monetary Union: nominal convergence, real divergence and slow growth?," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 16(1), pages 7-33, March.
  17. Soukiazis, Elias & Castro, Vitor, 2005. "How the Maastricht criteria and the Stability and Growth Pact affected real convergence in the European Union: A panel data analysis," Journal of Policy Modeling, Elsevier, Elsevier, vol. 27(3), pages 385-399, April.
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Citations

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Cited by:
  1. Vítor Castro, 2008. "The duration of economic expansions and recessions: More than duration dependence," NIPE Working Papers, NIPE - Universidade do Minho 18/2008, NIPE - Universidade do Minho.
  2. Luca Agnello & Vítor Castro & Ricardo M. Sousa, 2012. "Are there change-points in the likelihood of a fiscal consolidation ending?," NIPE Working Papers, NIPE - Universidade do Minho 18/2012, NIPE - Universidade do Minho.
  3. 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).
  4. L, Agnello. & R, M. Sousa., 2012. "How does Fiscal Consolidation Impact on Income Inequality?," Working papers, Banque de France 382, Banque de France.
  5. Castro, Vitor, 2011. "The impact of the European Union fiscal rules on economic growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(2), pages 313-326, June.

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