FISCAL CONVERGENCE IN THE EUROPEAN UNION BEFORE THE CRISIS

Abstract

This article investigates fiscal convergence attained by EU countries in the period 1991–2008, by employing β‐ and σ‐convergence techniques complemented by a time series analysis. Overall our results highlight a distinctive convergence pattern in the European Union. Fiscal discipline leading to a fast convergence of deficit/GDP ratio over the 1990s markedly weakened in the following decade. Nonetheless, after the Euro debut a pronounced convergence in total revenue and total government spending emerges, with different patterns characterizing each expenditure component. Despite this evidence of fiscal harmonization, European treaties failed to attract countries toward a common share of government debt over GDP. (JEL E61, H11, C23)