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

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  • João Afonso Coelho, António Portugal Duarte

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.

Suggested Citation

  • João Afonso Coelho, António Portugal Duarte, 2023. "The European fiscal framework: Counterfactual Analysis to its compliance in the hypothetical scenario without the Covid-19 pandemic," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 20(2), pages 265-298, December.
    • Handle: RePEc:liu:liucej:v:20:y:2023:i:2:p:265-298
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    More about this item

    Keywords

    ARIMA; Counterfactual analysis; Covid-19 pandemic; European Union; Fiscal rules;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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