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National Expenditure Rules in the EU An Analysis of Effectiveness and Compliance

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  • Cristiana Belu Manescu
  • Elva Bova

Abstract

This study reviews national expenditure rules currently in force in the EU, examining their design, effectiveness and the extent to which they have been complied with. Based on evidence from the Commission’s Fiscal Governance Database and using a novel database on compliance and econometric estimation, this study finds that out of the 14 expenditure rules covering general and central governments, half mirror the EU expenditure benchmark while four rules are multi-annual expenditure ceilings, with varying binding force. Empirical estimates over the 1999-2016 period confirm that while fiscal policy is indeed pro-cyclical in the EU, the magnitude of the pro-cyclical bias is lower in presence of expenditure rules. Moreover, the better the expenditure rule design in terms of legal base, independent monitoring, consequences for non-compliance or coverage, the stronger the mitigating effect. Finally, we find that expenditure rules were complied with in about 78 percent of cases, with compliance being better for multiannual expenditure ceilings than for rules specified as growth rates.

Suggested Citation

  • Cristiana Belu Manescu & Elva Bova, 2020. "National Expenditure Rules in the EU An Analysis of Effectiveness and Compliance," European Economy - Discussion Papers 124, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:124
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    References listed on IDEAS

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    Cited by:

    1. Olga Francová & Ermal Hitaj & John Goossen & Robert Kraemer & Andreja Lenarčič & Georgios Palaiodimos, 2021. "EU fiscal rules: reform considerations," Discussion Papers 17, European Stability Mechanism, revised 25 Oct 2021.
    2. Cronin, David & McQuinn, Kieran, 2023. "Government debt forecast errors and the net expenditure rule in EU countries: Undue optimism at a cost," Journal of Policy Modeling, Elsevier, vol. 45(6), pages 1113-1131.
    3. Mihaela Tofan & Mihaela Onofrei & Anca-Florentina Vatamanu, 2020. "Fiscal Responsibility Legal Framework—New Paradigm for Fiscal Discipline in the EU," Risks, MDPI, vol. 8(3), pages 1-18, July.
    4. Herrero-Alcalde, Ana & Martín-Román, Javier & Tránchez-Martín, José Manuel & Moral-Arce, Ignacio, 2024. "Fiscal rules to the test: The impact of the Spanish expenditure rule," European Journal of Political Economy, Elsevier, vol. 81(C).
    5. Kuusi, Tero & Puonti, Päivi, 2021. "Keep It Simple, Not Stupid – How to Save the EU Fiscal Framework?," ETLA Reports 120, The Research Institute of the Finnish Economy.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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