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Towards expenditure rules and fiscal sanity in the euro area

Sebastian Hauptmeier, A. Jesus Sanchez-Fuentes and Ludger Schuknecht ()
Authors registered in the RePEc Author Service: Antonio Jesus Sanchez Fuentes ()

Journal of Policy Modeling, 2011, vol. 33, issue 4, 597-617

Abstract: The study demonstrates the key role of expenditure policies in explaining fiscal developments during EMU in the euro area, its three largest members and four "macro-imbalances" countries. It compares actual primary expenditure trends with those that would have prevailed if countries had followed neutral policies based on expenditure rules since the start of EMU. Moreover, the implications for debt trends are calculated. Results show that all sample countries except Germany applied expansionary expenditure policies already before the crisis. Consequently, expenditure and debt paths were much higher compared to a counterfactual neutral expenditure stance. Rule-based expenditure policies could have led to much safer fiscal positions much more in line with the EU's Stability and Growth Pact. An empirical analysis of the determinants of countries' expenditure stance confirms the need for stronger fiscal rules and institutions in the euro area.

Keywords: Expenditure; policies; Public; debt; Expenditure; rules; Sustainability; Fiscal; stance (search for similar items in EconPapers)
Date: 2011
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Related works:
Working Paper: Towards Expenditure Rules and Fiscal Sanity in the Euro Area (2011) Downloads
Working Paper: Towards expenditure rules and fiscal sanity in the euro area (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:33:y:2011:i:4:p:597-617

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