The effects of European fiscal discipline measures on current account balances

Helena Glebocki Keefe () and Ralf Hepp
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Helena Glebocki Keefe: Fairfield University

International Economics and Economic Policy, 2024, vol. 21, issue 1, No 10, 283 pages

Abstract: Abstract Following the European Debt Crisis, there was a significant push for greater fiscal discipline across the EU member states. This began with the revitalization of the Stability and Growth Pact in 2011 and continued with the adoption of the Fiscal Stability Treaty of 2013. The measures were designed to maintain or achieve both government debt-to-GDP ratios of below 60% and government budget deficits of below 3%. This paper investigates whether the fiscal discipline measures had an impact on the relationship between fiscal and current account balances. Using the synthetic control method, we examine current account balances in each EU member state that implemented the fiscal provisions in the treaty (Title III), compared to a synthetic counterfactual economy. We find that countries most impacted by the European Debt Crisis experienced the greatest improvement in their current account deficits from the fiscal discipline measures. Several other EU member states also experienced stabilization in their current account balances compared to their synthetic counterfactuals.

Keywords: Current account balance; European fiscal stability treaty; Fiscal policy coordination; Synthetic control method (search for similar items in EconPapers)
JEL-codes: E61 E62 F32 F36 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10368-024-00587-y

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