Abstract
The following paper deals with the topical issue of fiscal surveillance in the EMU. We focus on analysing the impact of the EU's supranational fiscal rules [i.e., the Maastricht criteria for entering the EMU and the subsequent stability and growth pact (SGP)] on the fiscal behaviour of EMU member states in order to acquire new insights into solutions needed to ensure fiscal discipline in the future. With the regression of fiscal reaction functions for the panel of euro area countries, we estimate the changes occurring in discretionary fiscal policy in the Maastricht period and in the period after entering the EMU when the policy became governed by the SGP. Estimates show that EMU member states' discretionary fiscal policy was procyclical in the 1980s, but turned countercyclical in the Maastricht period. In the SGP period, the countercyclical behaviour decreased and fiscal policy became acyclical. We conclude that the difference in fiscal behaviour before and after entering the EMU is the result of a change in the incentives and that solutions should thus also be looked for in creating certain forms of positive incentives for fiscal discipline.
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