The Impact of Fiscal Rules on the Fiscal Deficit for Ten Countries of the European Union -Empirical Analysis for the Period 1995-2020

Abstract

This paper analyzes whether fiscal rules impact improved budget performance and fiscal discipline in the ten EU nations with the largest average fiscal deficit from 1995 to 2020. Fiscal performance will be reflected through the fiscal deficit adjusted for cyclical economic periods. The independent variables are real long-term interest rates, fiscal rules, public debt (expressed as a percentage of GDP), government effectiveness, and government spending (expressed as a percentage of GDP). The methodology used consists of empirical panel data through the OLS econometric model. With this model we have analyzed the responsiveness of the fiscal deficit, which have applied fiscal rules, by incorporating in the model other factors as well. The empirical results shows that fiscal rules, public debt, government effectiveness, and government spending statistically significantly impact the fiscal deficit. At the same time, the real long-term interest rate did not reach the level of statistical significance based on the model results.