Abstract
The European Commission has recently started a project aimed at harmonizing EU public accounting systems through the development of European Public Sector Accounting Standards (EPSAS). The project is a response to the lack of coherence between primary public-sector accounts and government financial statistics, in order to strengthen the economic governance structure in the euro area. This paper aims to show that the divergences (adjustments) between the measures of surplus/deficit in governmental (working balance, WB) and national accounting (net borrowing lending, NBL) vary over time to provide future research opportunities around the factors that, affecting temporal divergences between these measures, enhance fiscal fragility within the EU public sector accounting system. By analysing the Excessive Deficit Procedure (EDP) tables issued by 28 EU countries over the period 2010-2015, the paper uses novel approaches in measuring adjustments based on network analysis and regression models, showing that they are significantly different over time.
Highlights
The European Commission (2013) has recently launched a project for the establishment and implementation of European accounting standards for the public sector, the European Public Sector Accounting Standards (EPSAS)
This table provides a first insight into the fact that the total adjustments disclosed in each governmental sub-sector should be different in magnitude over the period analysed
This consideration is consistent with the results of some empirical studies (EY, 2012, p. 22 ff.; PwC, 2014, p. 36) that, through the construction of a proximity indicator compared to some International Public Sector Accounting Standards (IPSAS), have shown the profound variety of accounting practices found in the various governmental sub-sectors of the EU member countries
Summary
The European Commission (2013) has recently launched a project for the establishment and implementation of European accounting standards for the public sector, the EPSAS. A study prepared for Eurostat by Ernst and Young (EY, 2012) has provided evidence that the public accounting system and the related arrangements for auditing vary significantly between Member States and within different sub-sectors of government According to the same study, different practices produce significant adjustments between the surplus/deficit measures (working balance, WB) calculated at micro-level by Member States following different accounting models – from cash to accrual – and the same one (net/borrowing lending, NBL) calculated at macro-level according to the ESA statistical framework, that records accounting flows on the accruals basis. It aims to provide evidence that these adjustments vary over time considering all the different general government sub-sectors (e.g., central government, state government, local government, social security funds)
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