COMPLIANCE WITH FISCAL SUSTAINABILITY AND THE EURO

Antonio Afonso and Catarina Farinha Miranda

No 2025/0371, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Through fiscal reaction functions, we investigate fiscal sustainability for five European country-group panels and check for a change in fiscal behaviour after countries adopted the euro as their currency. Using annual data for the period between 1990 and 2021, we identify evidence of average compliance with sustainability restrictions among Eurozone nations. However, for the Eurozone countries there is a smaller response, 0.046 percentage points (pp), to an increase in the debt ratio than in the case of the European economies without euro, where the response is around 0.1036 pp. Conversely, the euro membership has decreased the average responsiveness of primary balances to debt shocks as compared to the period before the implementation of the euro.

Keywords: Fiscal Sustainability; Debt; Primary Budget Balance; Fiscal Reaction Functions; Euro Area. (search for similar items in EconPapers)
JEL-codes: E62 H62 (search for similar items in EconPapers)
Date: 2025-03
New Economics Papers: this item is included in nep-eec
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Related works:
Working Paper: Compliance with Fiscal Sustainability and the Euro (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp03712025

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