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Creative Accounting and Fiscal Rules in EU Member States: An Analysis Based on Stock Flow Adjustments

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  • Maltritz Dominik

    (Staatswissenschaftliche Fakulät, 38877 Universität Erfurt , Nordhäuser Straße 63, 99089 Erfurt, Freistaat Thüringen, Germany)

  • Wüste Sebastian

    (38877 University of Erfurt , Nordhäuser Str. 63, 99089 Erfurt, Thüringen, Germany)

Abstract

We study whether creative accounting for fiscal balances is a significant issue in EU countries and how it relates to fiscal rules. We especially consider internal fiscal rules and contrast them with external rules resulting from membership in the EMU or in the Eurozone. We regress stock-flow adjustments, which serve as an indicator for false reporting of public debt and deficit numbers, on several measures of fiscal rules in a panel framework comprising 27 EU countries. We complement the literature on creative accounting in the run-up to Eurozone membership by showing that joining leads to creative accounting not only in the initial period but also in later periods. We expand the literature by demonstrating that internal rules also induce creative accounting, regardless of whether the rules target public debt or budget deficits. Our findings hold for years before the Eurozone existed as well as for the Eurozone period.

Suggested Citation

  • Maltritz Dominik & Wüste Sebastian, 2024. "Creative Accounting and Fiscal Rules in EU Member States: An Analysis Based on Stock Flow Adjustments," Review of Economics, De Gruyter, vol. 75(2), pages 163-191.
    • Handle: RePEc:lus:reveco:v:75:y:2024:i:2:p:163-191:n:1002
    DOI: 10.1515/roe-2024-0031
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    References listed on IDEAS

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    1. Reuter, Wolf Heinrich, 2019. "When and why do countries break their national fiscal rules?," European Journal of Political Economy, Elsevier, vol. 57(C), pages 125-141.
    2. Milesi-Ferretti, Gian Maria & Moriyama, Kenji, 2006. "Fiscal adjustment in EU countries: A balance sheet approach," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3281-3298, December.
    3. Rotte, Ralph & Zimmermann, Klaus F, 1998. "Fiscal Restraint and the Political Economy of EMU," Public Choice, Springer, vol. 94(3-4), pages 385-406, March.
    4. Csaba G. Tóth, 2019. "Valuable legacy? The effect of inherited fiscal rules," Public Choice, Springer, vol. 178(1), pages 3-30, January.
    5. Shanna Rose, 2006. "Do fiscal rules dampen the political business cycle?," Public Choice, Springer, vol. 128(3), pages 407-431, September.
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    Keywords

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    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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