Enhancing Prudent Fiscal Policy

Grzegorz Poniatowski

Central European Journal of Economic Modelling and Econometrics, 2019, vol. 11, issue 4, 199-215

Abstract: The objective of this paper is to derive the characteristics of an effective governance framework ensuring incentives for conducting a prudent fiscal policy. We study this problem with the use of econometric tools and a sample of 28 European Union Member States between 2003 and 2017. By looking at specific reforms and measures, not only we verify the synthetic effectiveness of fiscal constraints but also we analyse specific elements of the governance framework. Our study shows that fiscal balances are affected not only by the economic cycle, but, among others, by the level of public debt and its cost. We find that the existence of numerical fiscal rules, in that specifically revenue and expenditures rules, their strong legal entrenchment, surveillance mechanisms, sanctions, and flexibility with respect to business cycle have a significant impact on curbing deficits.

Keywords: fiscal effort; fiscal rules; cyclically-adjusted balance; fiscal governance (search for similar items in EconPapers)
JEL-codes: C23 E62 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:11:y:2019:i:4:p:199-215

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