Examining the Impact of Fiscal Rules on Fiscal Stability in EU Member States

Abstract

Following the rapid escalation of budget deficits and public debt across many EU nations post-2008, fiscal policy has encountered a formidable challenge in devising suitable measures to fortify fiscal discipline and enhance the quality of public finance. Institutional mechanisms, including numerical fiscal rules, play a pivotal role in upholding fiscal discipline and bolstering the fiscal credibility of states. These rules typically entail permanent constraints on fiscal policy, delineated by indicators that set thresholds for specific fiscal aggregates such as budget deficits, public debt, public expenditure, or public revenue. The theoretical aim of this article is to scrutinize the institutional dimensions of numerical fiscal rules, encompassing their type, legal foundation, transparency, complexity, flexibility, adequacy, and coherence. The empirical objective, conversely, is to conduct statistical analysis and investigate the correlation between the fiscal rules index and the levels of budget deficit and public debt across the 28 Member States of the European Union. Evaluating the efficacy of implemented fiscal rules, both at the European and national levels, constitutes a crucial aspect of this analysis.