Abstract
The purpose of this study was to analyze fiscal behavior in the European Union countries, to highlight the implications of institutional constraints on healthy fiscal attitudes, and to test the relationship between government decisions, fiscal responsibility instruments, and the sustainability of public finances during the period 2000–2014. By using panel data analysis, we tested the responsiveness of primary balance to government indebtedness, as well as to some determinants of fiscal responsibility, such as the degree of public spending or fiscal rules effectiveness, and we included two different perspectives regarding fiscal rules status. First, we computed a fiscal responsibility index, which measures the applicability of or compliance with the fiscal rules, referring to legal dimensions and administrative and institutional capacity. Second, we established a fiscal responsibility convergence index, which measures the status of the EU Member States regarding the approach of numerical rules. The empirical findings indicate that fiscal authorities do not act to the existing stock of public debt and highlights a negative response of budget balances to the stock of outstanding debt. Fiscal position improves when the index of fiscal responsibility is involved and countries become more sustainable when they are related to the entire level of fiscal governance, with respect to legal framework, institutional and administrative capacity, but at the debt ratio threshold of over 90%, the effect of the overall fiscal rule comes out as less relevant for the improvement of the primary balance.
Highlights
In the wake of the financial crisis of 2008–2009, the topic of public finance sustainability received additional attention, with respect to the relationship between the fiscal rules, sound public finance, and government indebtedness
By approaching some elements of institutional arrangements and their political nature, we highlight that an analysis of healthy fiscal attitudes from the perspective of applicability or compliance with fiscal rules—referring to legal dimensions, administrative and institutional capacity, and taking into consideration the status of the EU Member States regarding the approach of numerical rules—has not been done before, which means that the results may be helpful for governments in shaping their own policies regarding fiscal governance objectives
Does this increase in fiscal rules and the fiscal governance framework enhance or control the EU fiscal sustainability framework? The general objective of this paper is to identify the status of fiscal behavior in the European Union countries, testing the relationship between government decisions, fiscal responsibility instruments, and the sustainability of public finances during the period 2000–2014
Summary
In the wake of the financial crisis of 2008–2009, the topic of public finance sustainability received additional attention, with respect to the relationship between the fiscal rules, sound public finance, and government indebtedness. After 2008, the entire EU fiscal governance framework, based on a set of specific rules, tried to improve the quality of public finances and to control the entire activity performed at a political and economic level, by striking a balance between the conflicting needs of political stakes and sustainable goals. These goals should be tackled to implement an analytical framework for fiscal sustainability and a comprehensive approach to achieve public finance sustainability, with respect to intergenerational fairness in terms of government debt levels and government solvency. For instance, to the aforementioned legislative instrument (the Stability and Growth Pact), in terms of alignment with imposed standards, there have been different particularities at the level of each Member State, and this idea is applicable to subsequent legislative instruments (Revision of the Stability and Growth Pact of 2005, Treaty on Stability, Coordination and Governance within the Economic and Monetary Union—European Fiscal Pact (2013), the so-called “Two pack”, as well as the “Six pack”)
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