Fiscal Restraint and the Political Economy of EMU

Ralph Rotte and Klaus Zimmermann ()

Public Choice, 1998, vol. 94, issue 3-4, 385-406

Abstract: While the principle of delegation has become well established on the national level for monetary policy, fiscal policies remain in the hands of policymakers depending on rent-seeking interest groups. The authors argue that the Maastricht Treaty provides a unique international commitment that enables governments to follow restrictive fiscal policies by attributing their negative side effects to Europe and to implement austerity measures despite rising unemployment or a decline in growth. Hence, the popularity of the European idea is instrumented to enforce fiscal discipline. The paper outlines the political economy framework and presents new econometric evidence. Copyright 1998 by Kluwer Academic Publishers

Date: 1998
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