Structural Budget Balance as a Fiscal Rule in the European Union—Good, Bad, or Ugly?

AbstractSeveral reforms aiming to strengthen budgetary discipline in the European Union have been implemented since the outbreak of the European debt crisis. Arguably the most important one is the Fiscal Compact, which stipulates that each signatory country must enshrine in domestic legislation an upper limit on the structural budget deficit, that is, the deficit after cyclical and other temporary factors have been excluded. This paper analyses the contents of the Fiscal Compact and discusses challenges for its implementation and efficacy. The conclusion is that the Fiscal Compact may be challenging to implement and enforce because the rules are very complex and require complicated calculations that are subject to very large forecasting uncertainty. The Fiscal Compact could, however, lead to a stronger national commitment to fiscal prudence.

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The European Union as a Trigger of Discursive Change: The Impact of the Structural Deficit Rule in Estonia and Latvia

Central European Journal of Public Policy ◽

10.2478/cejpp-2018-0006 ◽

2018 ◽

Vol 12 (2) ◽

pp. 1-15 ◽

Cited By ~ 1

Author(s):

Ringa Raudla ◽

Aleksandrs Cepilovs ◽

Rainer Kattel ◽

Linda Sutt

Keyword(s):

European Union ◽

Member State ◽

Policy Making ◽

Budget Deficit ◽

Policy Discourse ◽

The European Union ◽

Policy Actors ◽

Fiscal Compact ◽

The Impact ◽

Structural Budget

Abstract Our paper explores how a rule prescribed by the European Union can bring about changes in the policy discourse of a member state. Drawing on the literatures of discursive institutionalism and Europeanization, the theoretical part discusses the factors that influence discursive shifts. The empirical part examines the discursive impacts of the introduction of the structural budget deficit rule, required by the Fiscal Compact, in Estonia and Latvia. It demonstrates how the discursive shifts have been shaped by the localized translations offered by civil servants, the entrance of additional actors to the policy-making arena, crisis experience, and the strategic interests of policy actors.

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Taylor's Fiscal Rule: An Exit to the Stability and Growth Pact Dead-end?

Acta Oeconomica ◽

10.1556/aoecon.56.2006.3.4 ◽

2006 ◽

Vol 56 (3) ◽

pp. 323-340 ◽

Cited By ~ 2

Author(s):

Etienne Farvaque ◽

Florence Huart ◽

Clément Vaneecloo

Keyword(s):

Output Gap ◽

Stability And Growth Pact ◽

Budget Balance ◽

Fiscal Discipline ◽

Total Budget ◽

Growth Pact ◽

Dead End ◽

Fiscal Rule ◽

The Stability ◽

Structural Budget

This study applies Taylor's (2000) proposed fiscal rule to EU-15 countries. We show that such a simple, flexible and transparent fiscal rule, if applied to individual EMU countries, could improve the enforceability of the Stability and Growth Pact. This rule is used to compute the structural budget balance consistent with a total budget position in balance, given national specificities concerning automatic stabilisers and the output gap. It is thus designed for being consistent with both fiscal discipline and flexibility.

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Political Budget Cycles in the European Union: New Evidence of Fragmentation

Acta Oeconomica ◽

10.1556/032.2019.69.4.3 ◽

2019 ◽

Vol 69 (4) ◽

pp. 523-547

Author(s):

Milan Bednář

Keyword(s):

European Union ◽

Voter Turnout ◽

Principal Component ◽

The European Union ◽

Political Budget Cycles ◽

Eu Member States ◽

Potential Gdp ◽

Structural Budget ◽

The Eu ◽

Budget Cycles

This paper deals with the possible existence of political budget cycles (PBCs) within the European Union (EU). I use panel data for 28 EU countries from 1995 to 2016 and provide estimates based on dynamic panel regressions. I employ a system-GMM estimator complemented by the Principal Component Analysis (PCA) to limit the number of instruments. The specifications include structural budget balances related to the potential GDP, thereby limiting the initial endogeneity. These measures capture the true motivation behind fiscal policies. The results suggest that the EU member states exhibit PBCs: (i) the intervention occurs in the year before elections and (ii) the structural budget balance to the potential GDP ratio is lower by −0.41 percentage points a year before elections. In addition, I have investigated the EU fragmentation in terms of the PBCs and selected 8 countries’ characteristics correlating to the existence of these cycles. These include lower GDP per capita, post-communist background, low tax burden, high perceived corruption, low levels of media freedom and internet usage, lower number of directly voted-in legislative officials, and a low parliamentary voter turnout.

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Effects of fiscal rules on budgetary outcomes: The case of the European Union member states

Acta Oeconomica ◽

10.1556/032.2016.66.4.2 ◽

2016 ◽

Vol 66 (4) ◽

pp. 597-616 ◽

Cited By ~ 1

Author(s):

Agata Szymańska

Keyword(s):

European Union ◽

Data Model ◽

Union Member ◽

Dynamic Panel Data ◽

Fiscal Rules ◽

The European Union ◽

Fiscal Rule ◽

Fiscal Reaction Function ◽

The Impact ◽

European Union Member States

The aim of this paper is to investigate the influence of fiscal rules on the budgetary outcomes in 27 European Union countries. In particular, the paper focuses on assessing whether the impact of fiscal rules is statistically significant and numerically meaningful. In order to assess the influence, we use a dynamic panel data model. In our baseline model, we introduce the fiscal rule index as an explanatory variable. Our estimation rests on the fiscal reaction function. The analysis shows that the fiscal rule index positively affects the cyclically-adjusted primary balance and the cyclicallyadjusted balance.

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