Do Binding Fiscal Rules Enhance Fiscal Stability? Evidence from European Union Countries

Jocelyne Zoumenou and Antonia López Villavicencio

No 2024-29, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This study investigates the impact of fiscal rules on EU countries' fiscal stability, particularly within the Stability and Growth Pact (SGP) framework. By rigorously addressing endogeneity concerns, we show that compliance with budget balance rules (BBR) contributes to fiscal stability. However, countries that comply with all the targets imposed by the SGP simultaneously or that established a constitutional BBR do not perform better than countries that comply exclusively with the budget balance rule. Finally, our results indicate that strong fiscal rules are not necessary to achieve better fiscal discipline.

Keywords: Fiscal rules; Compliance; European Union; Instrumental Variables; Treatment Effect Models (search for similar items in EconPapers)
JEL-codes: C21 C26 E62 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024
New Economics Papers: this item is included in nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2024-29

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