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Enhanced Fiscal Governance in the European Union: The Fiscal Compact

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  • Kukk Merike

    (Department of Finance and Economics, Tallinn University of Technology Akadeemia tee 3-478, Tallinn 12618, Estonia)

  • Staehr Karsten

    (Department of Finance and Economics, Tallinn University of Technology Akadeemia tee 3-486, Tallinn 12618, Estonia)

Abstract

Several reforms aiming to strengthen budgetary discipline in the European Union have been implemented since the outbreak of the European debt crisis. Arguably the most important one is the Fiscal Compact, which stipulates that each signatory country must enshrine in domestic legislation an upper limit on the structural budget deficit, that is, the deficit after cyclical and other temporary factors have been excluded. This paper analyses the contents of the Fiscal Compact and discusses challenges for its implementation and efficacy. The conclusion is that the Fiscal Compact may be challenging to implement and enforce because the rules are very complex and require complicated calculations that are subject to very large forecasting uncertainty. The Fiscal Compact could, however, lead to a stronger national commitment to fiscal prudence.

Suggested Citation

  • Kukk Merike & Staehr Karsten, 2015. "Enhanced Fiscal Governance in the European Union: The Fiscal Compact," TalTech Journal of European Studies, Sciendo, vol. 5(1), pages 73-92, February.
    • Handle: RePEc:vrs:bjeust:v:5:y:2015:i:1:p:73-92:n:6
    DOI: 10.1515/bjes-2015-0006
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    Cited by:

    1. Michal Horvath, 2017. "European Fiscal Compact in Action: Can Independent Fiscal Institutions Deliver Effective Oversight?," Discussion Papers Discussion Paper No. 1/20, Council for Budget Responsibility.
    2. Ionel LEONIDA, 2018. "Theoretical Evaluations On The Legislative Framework Of Fiscal Governance In The European Union," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 3(4), pages 129-138.
    3. Julia del Amo Valor & Marcos Martín Mateos & Diego Martínez López & Javier J. Pérez, 2023. "Is the European economic governance framework too “complex”? A critical discussion," Working Papers 2023-06, FEDEA.
    4. Maritta Paloviita & Pasi Ikonen, 2018. "Real-time uncertainty in budget planning: evidence from euro area countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(4), pages 281-300, October.
    5. Ringa Raudla & James W. Douglas, 2021. "Structural Budget Balance as a Fiscal Rule in the European Union—Good, Bad, or Ugly?," Public Budgeting & Finance, Wiley Blackwell, vol. 41(1), pages 121-141, March.
    6. Pirvu, Daniela & Dutu, Amalia & Enachescu, Carmen, 2019. "Analysing Of Government'S Fiscal Behaviour In The Eu Member States Through Clustering Procedure," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 10(1), pages 23-39.
    7. Maritta Paloviita & Pasi Ikonen, 2018. "Real-time uncertainty in budget planning: evidence from euro area countries," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 21(4), pages 281-300, October.

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