The design of fiscal rules and forms of governance in European Union countries

• Published in: European Journal of Political Economy Vol. 23; no. 2; pp. 338 - 359
• Main Authors: Hallerberg, Mark, Strauch, Rolf, von Hagen, Jürgen
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.06.2007; Elsevier
• Series: European Journal of Political Economy
• Subjects: Budget control; Budgetary procedures; Budgets; Centralization; Decision Making; Europe; European public finances; European Union; Finance; Fiscal administration; Fiscal rules; Governance; Political Power; Public debt; Public finance; Public indebtedness; Public indebtedness; Budgetary procedures; H61; H62; Fiscal rules; European public finances; H11
• ISSN: 0176-2680; 1873-5703
• DOI: 10.1016/j.ejpoleco.2006.11.005

This paper uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU 15 member states. Empirical evidence for the time period 1985–2004 suggests that the centralisation of budgeting procedures restrains public debt. In countries with one-party governments or coalition governments where parties are closely aligned and where political competition among them is low, this is achieved by the delegation of decision-making power to the minister of finance. Fiscal contracts that require countries to set multi-year targets and that reinforce those targets increase fiscal discipline in countries with ideologically dispersed coalitions and where parties regularly compete against each other.