The European fiscal framework: Counterfactual Analysis to its compliance in the hypothetical scenario without the Covid-19 pandemic

António Portugal Duarte

European Journal of Comparative Economics, 2023, vol. 20, issue 2, 265 - 298

Abstract: This paper analyses the compliance patterns of the European fiscal rules of the public debt and budget deficit in a group of twelve Member States. The aim is to make a contrafactual analysis to the compliance of those rules from 2020 to 2022 in a hypothetical scenario without the Covid-19 pandemic. Our intention is to discuss the necessity and structure of a future reform of the European fiscal framework. To that effect it is developed a forecasting analysis based on an ARIMA model, from which there will be examined the behaviour of the public finance variables in the context of the Covid-19 pandemic against the scenario without it. Our results point to an improvement in the public finance variables in the absence of the pandemic, as well as better compliance in the respective fiscal rules. Nevertheless, it is recommended a moderate reform of the European fiscal rules by the time of its predicted return in the beginning of 2024. The budget deficit rule should be maintained to prevent dangerous indebtedness dynamics. In contrast, the public debt rule should be partially restructured, due to its inadequacy with and without the Covid-19 pandemic.

Keywords: ARIMA; Counterfactual analysis; Covid-19 pandemic; European Union; Fiscal rules (search for similar items in EconPapers)
JEL-codes: C15 E61 E62 F47 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:liu:liucej:v:20:y:2023:i:2:p:265-298

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