Abstract
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.
Published Version
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